James E. Rohr Chairman and Chief Executive Officer

March 12, 2009 To Our Shareholders: The PNC Financial Services Group produced solid results in 2008, a year marked by global economic and market challenges. Equally important, we completed a truly transformational acquisition that doubled our asset size and significantly enhanced our distribution platform, positioning us for further growth when the economy begins to recover. Through the efforts of our dedicated employees, PNC earned net income of $882 million, or $2.46 per diluted share, for the year and posted some of the strongest profitability ratios among our peers.* Excluding acquisition-related conforming provisions for credit losses and other integration costs of $422 million after tax, 2008 net income would have been $1.3 billion or $3.68 per diluted share. We were able to increase loan loss reserve coverage, strengthen our liquidity and capital, and return a portion of our earnings to shareholders. These results clearly differentiated us from many large banks. Even so, the Board of Directors recently made the very difficult but prudent decision to reduce our quarterly common stock dividend to 10 cents per share effective with the next dividend expected to be declared in April. Due to rapid economic deterioration, we are taking this proactive step to build capital, strengthen our balance sheet and serve customers. We expect to increase our dividend when appropriate after conditions stabilize. This same economic uncertainty has affected valuations of financial services companies, and we are disappointed in the absolute recent performance of PNC’s stock price. While our relative performance has been better than many large banks, we continue to believe the fluctuations in PNC’s common stock price are not indicative of our sound fundamentals. PNC is healthy, well capitalized and open for business. By adhering to our business model, we have consistently made credit available to qualified customers. Since the second quarter of 2007 – when many believe the credit crunch began – through the end of 2008, we grew average loans by 19 percent, well in excess of many of our peers. Our efforts continued as we originated approximately $9 billion in loans and commitments to lend in the fourth quarter. In this challenging economy, we are pursuing responsible measures to assist homeowners experiencing financial hardships. We are working with qualified customers to set up new repayment schedules and loan modifications, and we will enhance this process throughout 2009. Additionally, we see President Obama’s goal to reduce home foreclosures as a means of providing stability to the national housing market and reducing this impact on our economy. PNC completed the acquisition of National City Corporation on December 31, 2008, primarily by issuing approximately 95 million shares of our common equity, making PNC the fifth largest U.S. bank by deposits and doubling our assets to $291 billion. This combination provides long-term opportunities to apply our business model and increase customers and revenue. I am pleased to welcome National City employees, customers and shareholders to the PNC family. We issued $7.6 billion of preferred stock and a common stock warrant to the U.S. Department of the Treasury under the TARP Capital Purchase Program on December 31, 2008. These proceeds enhanced our already strong regulatory capital, and we plan to redeem the Treasury Department’s investment as soon as appropriate. Since PNC’s 2008 performance was below expectations, our Board determined executive compensation should reflect both this and the current regulatory environment. As a result, total pay to PNC executives was lower this year.

* PNC’s 2008 peer group consisted of BB&T Corporation, Comerica Inc., Fifth Third Bancorp, KeyCorp, National City Corporation, Regions Financial Corporation, SunTrust Banks Inc., U.S. Bancorp, Wachovia Corporation and Wells Fargo & Company.

The PNC Financial Services Group One PNC Plaza 249 Fifth Avenue Pittsburgh Pennsylvania 15222-2707 We remain focused on strengthening our balance sheet including capital and liquidity positions, prudent risk and expense management, and driving customer satisfaction. Application of these business strategies should propel PNC on its continuing journey to become a great company. Our capital and liquidity remained strong. In the current environment, we see capital and liquidity as key differentiators. PNC significantly strengthened regulatory capital throughout 2008, ending the year with a Tier 1 risk-based capital ratio of 9.7 percent, a dramatic improvement from the 2007 year-end level of 6.8 percent. PNC maintained a strong liquidity position and full-year average deposits increased by 10 percent. Following the acquisition of National City, PNC remained a core-funded bank with a loan-to-deposit ratio of 91 percent. Our recent dividend reduction is expected to add approximately $1 billion annually to PNC’s common equity position, further increasing our strong capital and liquidity positions. We are focused on risk management. At PNC we view risk management as the responsibility of every employee, and our enterprise-wide risk program monitors credit, liquidity, market, operational, reputational and strategic risk. We recognize that credit risk is a primary concern, and while our businesses performed relatively well in 2008, we were not immune to economic or market challenges. Credit quality deterioration of our loan portfolio accelerated in the fourth quarter, and we expect a difficult economy to persist throughout 2009. With an economy in severe recession and our recent acquisition of National City, our balance sheet does not currently reflect our desired moderate risk position. However, we remain committed to managing to an overall moderate risk business model, and we are working to bring our risk issues back into alignment. Reflecting that approach, we conducted a comprehensive review of the risk on National City’s balance sheet. As a result, we recorded $7.4 billion of fair value adjustments on $19.3 billion of acquired loans we identified as impaired and recorded fair value adjustments and loan loss reserves totaling $5.2 billion on performing loans. We believe we recorded appropriate reserves at year end for the credit risk associated with loans acquired from National City. This puts us in a strong position as we have marked to market a substantial portion of our new balance sheet. The actions taken with National City’s loan portfolio and our overall increased allowance for loan losses resulted in increased loss coverage for both performing loans and nonperforming loans, and are key steps in transitioning our balance sheet back to our desired moderate risk profile. We support U.S. Treasury Secretary Timothy Geithner’s proposal for comprehensive stress tests for all major U.S. banks. Stress testing is an integral aspect of being a well-run financial institution. At PNC we routinely perform stress tests as part of our disciplined approach to risk management. We improved our operating leverage. We created positive operating leverage on a full-year basis by growing our diverse, high-quality revenue streams faster than expenses. Full-year revenue growth was primarily driven by a strong increase in net interest income. Our liability- sensitive balance sheet was well positioned for the rapid decline in short-term rates that took place during 2008, reducing our overall cost of funds. We use a coordinated approach across business segments and staff functions to efficiently fund the balance sheet. We also saw improved credit spreads and loan growth, and our client-based fee income categories posted good results overall for the full year. Expenses increased as we invested in new products and markets, but at a lower rate than revenues, reflecting PNC’s culture of continuous improvement. This focus on expenses is critical especially as we expect credit costs will continue to increase in 2009. We continued to increase the number of customers we serve. Enhanced brand recognition and investments in innovative products and services increased customer purchase consideration and attracted new clients to PNC in 2008. Checking accounts are the cornerstone product in our Retail Banking client acquisition strategy, and through organic growth, we added more than 72,000 net new consumer and business checking relationships in 2008. With the acquisition of National City, our retail franchise now serves more than 6 million consumer and business customers with a network that exceeds 2,550 branches and 6,200 ATMs. The market reaches from the Midwest to the Mid-Atlantic, providing access to almost one-third of the total U.S. population and a strong presence in 33 of the most populated metropolitan areas. We see excellent opportunities to cross-sell other PNC products, generating higher fee-based revenue. And there is tremendous potential to expand our workplace and university banking initiatives, which have proven to be a very successful way of initiating client relationships. We launched our Virtual Wallet product in August of last year and generated more than 30,000 accounts through year-end, with more than 60 percent of them new to PNC. These accounts are designed to meet the banking needs of Gen Y consumers, and they have higher average balances and better retention rates than our traditional checking accounts. Offerings for small businesses include treasury management and remote deposit. And earlier this year, we began an advertising campaign called “CFO: Cash Flow Options” to increase interest in our cash flow product. Our products, combined with exceptional service, are designed to help us grow our share of consumer and business customers. PNC was already one of the leading bank wealth managers in the country. With the combination of PNC and National City – bringing total assets under management to $110 billion – we have clearly strengthened that position and created significant growth potential in new high-net-worth and institutional markets. We have named the combined business segment PNC Asset Management Group, and we see opportunities for further growth by expanding our highly successful referral process in our new territories. We leveraged our market leadership. We continued to invest in our businesses to deepen client relationships. That is reflected in our Corporate & Institutional Banking segment and in PNC Global Investment Servicing. Corporate & Institutional Banking is focused on being a premier provider to middle-market customers. With national capabilities, this segment offers credit, liquidity and capital markets-related products and services. In fact, while volume for the syndicated loan market in the United States was down last year, PNC led the industry in the number of deals completed, and we maintained our leadership positions – No. 1 in deals and No. 2 in volume – in our legacy footprint. PNC’s Harris Williams, one of the top M&A advisory firms serving middle-market customers, generated revenue of more than $100 million in 2008. Treasury Management’s healthcare products had a strong year. This packaged offering, which helps healthcare providers and third-party payers to manage the increasingly complex healthcare information and payment process electronically, posted double-digit growth in revenue and transactional volume in 2008. Overall, more large corporate, middle-market and municipal customers turned to us for banking relationships that include credit and fee-based products and services. In fact, we were named “Small Business Lender of the Year,” by the Export-Import Bank of the United States, reflecting our ability to provide working capital loans quickly to qualified borrowers. Last year PNC Global Investment Servicing (formerly PFPC) was renamed to reflect its full scope of business capabilities and corporate alignment. While the segment was affected by challenging financial markets, Global Investment Servicing retained its leadership positions in the processing business as the No. 1 subaccounting provider and No. 2 full-service mutual fund transfer agent in the United States. Total assets serviced at year end were $2 trillion. During 2008 Global Investment Servicing expanded its markets with the opening of an office in Poland, and it earned first place from Money Management Executive for its unified managed account platform. Earlier this year, it launched full-service processing for exchange-traded funds. PNC owns 33 percent of BlackRock’s equity. BlackRock, one of the largest publicly traded investment management firms in the United States, ended 2008 with $1.3 trillion in assets under management. While revenue was affected by the impact of extremely volatile markets during the second half of the year, BlackRock’s truly global reach, specialized and well-regarded financial expertise, and commitment to client service should continue to benefit PNC. We remain committed to our employees and our communities. We believe that making investments to attract and develop diverse and talented employees and grow the communities we serve is smart business. We were honored by Fortune magazine as one of the most admired companies in America, and BusinessWeek 50 included PNC on its list of top performing companies. We believe we offer employees a good working environment, and we are pleased that others share that view. In fact, BusinessWeek said PNC was one of the “Best Places to Launch a Career.” We ranked among the “25 Noteworthy Companies for Diversity” by DiversityInc. We earned a place on the Working Mother list of the “100 Best Companies for Working Mothers” for the seventh time. We helped sustain the economic health of neighborhoods where we do business through community development banking, investing more than $1 billion last year. Our efforts once again earned PNC the highest possible rating of “outstanding” for our Community Reinvestment Act activities, which include special loans, low-cost checking accounts and education for the financially disadvantaged. We believe education lights the path to financial independence, which is why we launched PNC Grow Up Great in 2004, a program that helps children from birth to five years of age prepare for school and life, and made a $100 million commitment to it. In the past five years, our employees have logged more than 100,000 hours of volunteer service, and the program has produced measureable results in math and science education. We were pleased to be recognized in 2008 by the Committee Encouraging Corporate Philanthropy, and we look forward to launching PNC Grow Up Great in our expanded retail market this year. Our community commitment also includes the environment. PNC has more buildings certified by the U.S. Green Building Council than any company on earth, with more to come. When Three PNC Plaza, located at our Pittsburgh headquarters, opens in the third quarter of this year, it will be the largest mixed use green building in the world. And in 2010, PNC Place will open in Washington, D.C., serving as a new, green regional headquarters. We serve retail customers from more than 50 highly energy efficient Green Branch® locations. We were pleased to be named as one of nine recipients of Sustainable Cities Award, sponsored by The Financial Times and Urban Land Institute. We Continue to Build a Great Company We see the combination of National City and PNC as truly transformational. We completed this significant acquisition in less than 70 days, the fastest close in our company’s history. Our integration efforts are well under way with a focus on managing to an overall moderate risk profile, achieving cost savings targets and successfully converting National City branch locations. While we believe 2009 will be a challenging year for the financial services industry, we remain focused on the importance of meeting our customers’ needs so they will continue to have confidence in PNC. To do this, we will continue to prudently manage risk and expenses, maintain solid capital and liquidity positions, and serve our customers, shareholders, employees and communities. We believe this is the surest path to producing long-term value. On behalf of everyone at PNC, I want to thank you for your continued trust. We value your belief in us as we continue to build a great company.

Sincerely,

James E. Rohr Chairman and Chief Executive Officer

For more information regarding certain factors that could cause future results to differ, possibly materially, from historical performance or from those anticipated in forward-looking statements, see the Cautionary Statement in Item 7 of our 2008 Annual Report on Form 10-K, which accompanies this letter. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2008 Commission file number 001-09718 THE PNC FINANCIAL SERVICES GROUP, INC. (Exact name of registrant as specified in its charter) Pennsylvania 25-1435979 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) One PNC Plaza 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 (Address of principal executive offices, including zip code) Registrant’s telephone number, including area code - (412) 762-2000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered Common Stock, par value $5.00 New York Stock Exchange $1.60 Cumulative Convertible Preferred Stock-Series C, par value $1.00 New York Stock Exchange $1.80 Cumulative Convertible Preferred Stock-Series D, par value $1.00 New York Stock Exchange Depositary Shares Each Representing 1/4000 Interest in a Share of 9.875% Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Series L, par value $1.00 12.000% Fixed-to-Floating Rate Normal Automatic Preferred Enhanced Capital New York Stock Exchange Securities (issued by National City Capital Trust I) 6.625% Trust Preferred Securities (issued by National City Capital Trust II) New York Stock Exchange 6.625% Trust Preferred Securities (issued by National City Capital Trust III) New York Stock Exchange 8.000% Trust Preferred Securities (issued by National City Capital Trust IV) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: $1.80 Cumulative Convertible Preferred Stock - Series A, par value $1.00 $1.80 Cumulative Convertible Preferred Stock - Series B, par value $1.00 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes X No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No X The aggregate market value of the registrant’s outstanding voting common stock held by nonaffiliates on June 30, 2008, determined using the per share closing price on that date on the New York Stock Exchange of $57.10, was approximately $19.7 billion. There is no non-voting common equity of the registrant outstanding. Number of shares of registrant’s common stock outstanding at February 17, 2009: 444,312,329 DOCUMENTS INCORPORATED BY REFERENCE Portions of the definitive Proxy Statement of The PNC Financial Services Group, Inc. to be filed pursuant to Regulation 14A for the 2009 annual meeting of shareholders (“Proxy Statement”) are incorporated by reference into Part III of this Form 10-K. TABLE OF CONTENTS ITEM 1–BUSINESS

PART I Page BUSINESS OVERVIEW We are one of the largest diversified Item 1 Business. 2 financial services companies in the United States and are Item 1A Risk Factors. 10 headquartered in Pittsburgh, Pennsylvania. As described Item 1B Unresolved Staff Comments. 17 Item 2 Properties. 17 further below and elsewhere in this Report, on December 31, Item 3 Legal Proceedings. 17 2008, PNC acquired National City Corporation (“National Item 4 Submission of Matters to a Vote of City”), nearly doubling our assets to a total of $291 billion and Security Holders. 17 expanding our total consolidated deposits to $193 billion. Executive Officers of the Registrant 18 Directors of the Registrant 18 We were incorporated under the laws of the Commonwealth PART II of Pennsylvania in 1983 with the consolidation of Pittsburgh Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer National Corporation and Provident National Corporation. Purchases of Equity Securities. 19 Since 1983, we have diversified our geographical presence, Common Stock Performance Graph 20 business mix and product capabilities through internal growth, Item 6 Selected Financial Data. 21 strategic bank and non-bank acquisitions and equity Item 7 Management’s Discussion and Analysis of investments, and the formation of various non-banking Financial Condition and Results of Operations 23 subsidiaries. Item 7A Quantitative and Qualitative Disclosures About Market Risk. 79 Prior to the National City acquisition, PNC had businesses Item 8 Financial Statements and Supplementary engaged in retail banking, corporate and institutional banking, Data. 79 asset management, and global investment servicing, providing Item 9 Changes in and Disagreements With Accountants on Accounting and many of its products and services nationally and others in Financial Disclosure. 162 PNC’s primary geographic markets located in Pennsylvania, Item 9A Controls and Procedures. 162 New Jersey, Washington, DC, Maryland, Virginia, Ohio, Item 9B Other Information. 162 Kentucky and Delaware. PNC also provided certain PART III investment servicing internationally.

Item 10 Directors, Executive Officers and National City’s primary businesses prior to its acquisition by Corporate Governance. 162 Item 11 Executive Compensation. 163 PNC included commercial and retail banking, mortgage Item 12 Security Ownership of Certain Beneficial financing and servicing, consumer finance and asset Owners and Management and Related management, operating through an extensive network in Ohio, Stockholder Matters. 163 Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Item 13 Certain Relationships and Related Pennsylvania and Wisconsin. National City also conducted Transactions, and Director Independence. 165 selected consumer lending businesses and other financial Item 14 Principal Accounting Fees and Services. 165 services on a nationwide basis. PART IV Item 15 Exhibits, Financial Statement Schedules. 165 ACQUISITION OF NATIONAL CITY CORPORATION SIGNATURES 167 On December 31, 2008, we acquired National City for EXHIBIT INDEX E-1 approximately $6.1 billion. The total consideration included approximately $5.6 billion of PNC common stock, $150 PART I million of preferred stock, and cash paid to warrant holders by Forward-Looking Statements: From time to time, The PNC National City. Financial Services Group, Inc. (“PNC” or the “Corporation”) has made and may continue to make written or oral forward- We completed the acquisition primarily by issuing looking statements regarding our outlook or expectations for approximately 95 million shares of PNC common stock. In earnings, revenues, expenses, capital levels, liquidity levels, accordance with purchase accounting methodologies, National asset quality or other future financial or business performance, City Bank’s balance sheet was adjusted to fair value at which strategies or expectations, or the impact of legal, regulatory or time the bank was under-capitalized from a regulatory supervisory matters on our business operations or performance. perspective. However, PNC’s Consolidated Balance Sheet This Annual Report on Form 10-K (the “Report” or “Form remained well-capitalized and liquid. 10-K”) also includes forward-looking statements. With respect to all such forward- looking statements, you should review our Following the closing, PNC received $7.6 billion from the US Risk Factors discussion in Item 1A and our Risk Management, Department of the Treasury under the Emergency Economic Critical Accounting Policies and Judgments, and Cautionary Stabilization Act of 2008 in exchange for the issuance of Statement Regarding Forward-Looking Information sections preferred stock and a warrant. These proceeds were used to included in Item 7 of this Report. enhance National City Bank’s regulatory capital position to

2 well-capitalized in order to continue serving the credit and and earnings attributable to foreign activities were not deposit needs of existing and new customers. On a material in the periods presented. The business segment consolidated basis, these proceeds resulted in further results for 2008 and prior periods do not include the impact of improvement to our capital and liquidity positions. National City, which we acquired on December 31, 2008.

National City, based in Cleveland, Ohio, was one of the RETAIL BANKING nation’s largest financial services companies. In connection Retail Banking provides deposit, lending, brokerage, trust, with obtaining regulatory approvals for the acquisition, PNC investment management, and cash management services to has agreed to divest 61 of National City Bank’s branches in over 6 million consumer and small business customers within Western Pennsylvania with deposits of approximately $3.9 our primary geographic markets. Our customers are serviced billion as of December 31, 2008. We expect to merge National through 2,589 offices in our branch network as of City Bank into PNC Bank, National Association (“PNC Bank, December 31, 2008 (including National City branches), the N.A.”) in the fourth quarter of 2009. call center and the internet. The branch network is located primarily in Pennsylvania, New Jersey, Washington, DC, Additional information regarding our acquisition of National Maryland, Virginia, Delaware, Ohio, Kentucky, Indiana, City can be found in the following disclosures: Illinois, Michigan, Missouri, Florida and Wisconsin. • The Executive Summary portion of Item 7 of this Report, Retail Banking also serves as investment manager and trustee • Note 2 Acquisitions and Divestitures included in our for employee benefit plans and charitable and endowment Notes To Consolidated Financial Statements within assets and provides nondiscretionary defined contribution plan Item 8 of this Report, and services. These services are provided to individuals and • Our Current Reports on Form 8-K filed October 24, corporations primarily within our primary geographic markets. 2008, October 30, 2008, December 23, 2008, and January 2, 2009. Our core strategy is to acquire and retain customers who OTHER ACQUISITION AND DIVESTITURE ACTIVITY maintain their primary checking and transaction relationships On April 4, 2008, we acquired Lancaster, Pennsylvania-based with PNC. We also seek revenue growth by deepening our Sterling Financial Corporation for approximately 4.6 million share of our customers’ financial assets and needs, including shares of PNC common stock and $224 million in cash. savings and liquidity deposits, loans and investable assets. A Sterling was a banking and financial services company with key element of our strategy is to continue to optimize our approximately $3.2 billion in assets, $2.7 billion in deposits, physical distribution network by opening and upgrading stand- and 65 branches in south-central Pennsylvania, northern alone and in-store branches in attractive sites while Maryland and northern Delaware. consolidating or selling branches with less opportunity for growth. On March 31, 2008, we sold J.J.B. Hilliard, W.L. Lyons, LLC, a Louisville, Kentucky-based wholly-owned subsidiary of CORPORATE &INSTITUTIONAL BANKING PNC and a full-service brokerage and financial services Corporate & Institutional Banking provides lending, treasury provider, to Houchens Industries, Inc. We recognized an management, and capital markets-related products and after-tax gain of $23 million in the first quarter of 2008 in services to mid-sized corporations, government entities, and connection with this divestiture. selectively to large corporations. Lending products include secured and unsecured loans, letters of credit and equipment We include information on significant acquisitions and leases. Treasury management services include cash and divestitures in Note 2 Acquisitions and Divestitures in the investment management, receivables management, Notes To Consolidated Financial Statements in Item 8 of this disbursement services, funds transfer services, information Report and here by reference. reporting, and global trade services. Capital markets-related REVIEW OF LINES OF BUSINESS In addition to the following products and services include foreign exchange, derivatives, information relating to our lines of business, we incorporate loan syndications, mergers and acquisitions advisory and information under the captions Line of Business Highlights, related services to middle-market companies, securities Product Revenue, and Business Segments Review in Item 7 of underwriting, and securities sales and trading. Corporate & this Report here by reference. Also, we include financial and Institutional Banking also provides commercial loan servicing, other information by business in Note 27 Segment Reporting and real estate advisory and technology solutions for the in the Notes To Consolidated Financial Statements in Item 8 commercial real estate finance industry. Corporate & of this Report here by reference. Institutional Banking provides products and services generally within our primary geographic markets with certain products We have four major businesses engaged in providing banking, and services offered nationally. asset management and global fund processing products and services: Retail Banking; Corporate & Institutional Banking; Corporate & Institutional Banking is focused on becoming a BlackRock; and Global Investment Servicing. Assets, revenue premier provider of financial services in each of the markets it

3 serves. The value proposition to its customers is driven by competitors. During the past year, Global Investment providing a broad range of competitive and high quality Servicing expanded its capabilities to serve its clients in the products and services by a team fully committed to delivering full service subaccounting arena, integrated its recent the comprehensive resources of PNC to help each client acquisitions of Albridge Solutions and Coates Analytics, and succeed. Corporate & Institutional Banking’s primary goals opened a new servicing unit in Wroclaw, Poland. are to achieve market share growth and enhanced returns by means of expansion and retention of customer relationships BUSINESS SEGMENT CHANGES IN 2009 and prudent risk and expense management. In addition to our existing business segments, PNC will have three additional business segments beginning in the first BLACKROCK quarter of 2009: Residential Mortgage Banking; PNC Asset BlackRock is one of the largest publicly-traded investment Management Group; and Distressed Assets Portfolio. These management firms in the United States with $1.3 trillion of new business segments reflect the impact of our December 31, assets under management at December 31, 2008. BlackRock 2008 acquisition of National City and are more fully described manages assets on behalf of institutional and individual in Note 28 Subsequent Event included in the Notes To investors worldwide through a variety of fixed income, cash Consolidated Financial Statements included under Item 8 of management, equity and balanced and alternative investment this Report. separate accounts and funds. In addition, BlackRock provides risk management, investment system outsourcing and SUBSIDIARIES Our corporate legal structure at December 31, financial advisory services globally to institutional investors. 2008 consisted of three domestic subsidiary banks, including their subsidiaries, and approximately 79 active non-bank At December 31, 2008, our equity ownership interest in subsidiaries. PNC Bank, N.A., headquartered in Pittsburgh, BlackRock was approximately 33%. Our investment in Pennsylvania, and National City Bank, headquartered in BlackRock is a strategic asset of PNC and a key component of Cleveland, Ohio, are our principal bank subsidiaries. Our our diversified earnings stream. The ability of BlackRock to other bank subsidiary is PNC Bank, Delaware. Our non-bank grow assets under management is the key driver of increases subsidiary, Global Investment Servicing, has obtained a in its revenue, earnings and, ultimately, shareholder value. banking license in Ireland and a branch in Luxembourg, which BlackRock’s strategies for growth in assets under allow Global Investment Servicing to provide depositary management include a focus on achieving client investment services as part of its business. For additional information on performance objectives in a manner consistent with their risk our subsidiaries, see Exhibit 21 to this Report. preferences and delivering excellent client service. The business dedicates significant resources to attracting and STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES retaining talented professionals and to the ongoing The following statistical information is included on the enhancement of its investment technology and operating indicated pages of this Report and is incorporated herein by capabilities to deliver on this strategy. reference: Form 10-K page GLOBAL INVESTMENT SERVICING Average Consolidated Balance Sheet Global Investment Servicing (formerly PFPC) is a leading And Net Interest Analysis 157 provider of processing, technology and business intelligence Analysis Of Year-To-Year Changes In services to asset managers, broker-dealers, and financial Net Interest Income 156 advisors worldwide. Securities services include custody, Book Values Of Securities 33 and 108-110 securities lending, and accounting and administration for Maturities And Weighted-Average funds registered under the Investment Company Act of 1940 Yield Of Securities 110 and alternative investments. Investor services include transfer Loan Types 31, 104 and 158 agency, subaccounting, banking transaction services, and Selected Loan Maturities And Interest distribution. Financial advisor services include managed Sensitivity 161 accounts and information management. This business segment Nonaccrual, Past Due And Restructured serviced $2.0 trillion in total assets and 72 million shareholder Loans And Other Nonperforming accounts as of December 31, 2008, both domestically and Assets 60-62, 105 and 158 internationally. International locations include Ireland, Poland Potential Problem Loans And Loans and Luxembourg. Held For Sale 35 and 60-62 Global Investment Servicing focuses technological resources Summary Of Loan Loss Experience 61-62 and 159 on driving efficiency through streamlining operations and Assignment Of Allowance For Loan developing flexible systems architecture and client-focused And Lease Losses 61-62 and 159 servicing solutions. Global Investment Servicing’s mission is Average Amount And Average Rate to help enable its clients to expand their capabilities, maintain Paid On Deposits 157 a technical edge, and maximize returns on their internal Time Deposits Of $100,000 Or More 121 and 161 resources by growing revenue and staying ahead of Selected Consolidated Financial Data 21-22

4 SUPERVISION AND REGULATION Due to the current economic environment and issues facing the financial services industry, as well as the effect of the OVERVIEW change from the Bush to the Obama administration, we PNC is a bank holding company registered under the Bank anticipate new legislative and regulatory initiatives over the Holding Company Act of 1956 as amended (“BHC Act”) and next several years, including many focused specifically on a financial holding company under the Gramm-Leach-Bliley banking and other financial services in which we are engaged. Act (“GLB Act”). These initiatives will be in addition to the actions already taken by Congress and the regulators, including the We are subject to numerous governmental regulations, some Emergency Economic Stabilization Act of 2008 (“EESA”) of which are highlighted below. You should also read Note 23 and the American Recovery and Reinvestment Act of 2009 Regulatory Matters in the Notes To Consolidated Financial (the “Recovery Act”). Developments to date, as well as those Statements in Item 8 of this Report, included here by that come in the future, have had and are likely to continue to reference, for additional information regarding our regulatory have an impact on the conduct of our business. The more matters. Applicable laws and regulations restrict permissible detailed description of the significant regulations to which we activities and investments and require compliance with are subject that follows is based on the current regulatory protections for loan, deposit, brokerage, fiduciary, mutual environment and is subject to potentially material change. fund and other customers, among other things. They also restrict our ability to repurchase stock or to receive dividends On February 10, 2009, the US Department of the Treasury from bank subsidiaries and impose capital adequacy announced a capital assistance program to ensure that banking requirements. The consequences of noncompliance can institutions are appropriately capitalized, with high quality include substantial monetary and nonmonetary sanctions. capital. A key component of the program is a one-time forward- looking supervisory assessment of the capital needs of the 19 In addition, we are subject to comprehensive examination and largest bank holding companies (those such as PNC with risk- supervision by, among other regulatory bodies, the Board of weighted assets of $100 billion or more) under a more Governors of the Federal Reserve System (“Federal Reserve”) challenging economic environment than currently projected. and the Office of the Comptroller of the Currency (“OCC”), which results in examination reports and ratings (which are To conduct the exercise, these bank holding companies will be not publicly available) that can impact the conduct and growth asked to analyze their loans and securities portfolios, as well of our businesses. These examinations consider not only as off-balance sheet commitments and contingencies, to compliance with applicable laws and regulations, but also determine expected future losses under “base case” and “more capital levels, asset quality and risk, management ability and adverse” economic scenarios. They will also be asked to performance, earnings, liquidity, and various other factors. An forecast internal resources available to absorb losses, examination downgrade by any of our federal bank regulators including pre-provision revenue and reserves. potentially can result in the imposition of significant Should the supervisory agencies determine based on the limitations on our activities and growth. These regulatory assessment that an additional capital buffer is warranted, bank agencies generally have broad discretion to impose restrictions holding companies will be given a six month period to raise and limitations on the operations of a regulated entity where the additional capital from private sources. Otherwise, bank the agencies determine, among other things, that such holding companies that have undergone this forward-looking operations are unsafe or unsound, fail to comply with capital test will have access to the US Department of the applicable law or are otherwise inconsistent with laws and Treasury capital in the form of mandatorily convertible regulations or with the supervisory policies of these agencies. preferred shares. This supervisory framework could materially impact the conduct, growth and profitability of our operations. In light of the economic downturn and the actions taken by Congress, the US Department of the Treasury and other We are also subject to regulation by the Securities and regulatory agencies to address the credit crisis, there is an Exchange Commission (“SEC”) by virtue of our status as a increased focus by regulators on lending activities by banks public company and due to the nature of some of our and the relationship between those activities and governmental businesses. efforts to improve this situation. Also at least in part driven by the current economic and financial situation, there is an As a regulated financial services firm, our relationships and increased focus on fair lending and other issues related to the good standing with regulators are of fundamental importance mortgage industry. Ongoing mortgage-related regulatory to the continuation and growth of our businesses. The Federal reforms include measures aimed at limiting mortgage Reserve, OCC, SEC, and other domestic and foreign foreclosures. regulators have broad enforcement powers, and powers to approve, deny, or refuse to act upon our applications or There has been a heightened focus recently on consumer notices to conduct new activities, acquire or divest businesses protection issues generally, including those related to the or assets and deposits, or reconfigure existing operations. protection of confidential customer information.

5 Over the last several years, there has been an increasing are restrictions on dividends associated with our December 31, regulatory focus on compliance with anti-money laundering 2008 issuance of preferred stock to the US Department of the laws and regulations, resulting in, among other things, several Treasury under the TARP Capital Purchase Program, as significant publicly announced enforcement actions. discussed in Note 19 Shareholders’ Equity of the Notes To Consolidated Financial Statements under Item 8 of this There are numerous rules governing the regulation of financial Report. services institutions and their holding companies. Accordingly, the following discussion is general in nature and Additional Powers Under the GLB Act. The GLB Act permits does not purport to be complete or to describe all of the laws a qualifying bank holding company to become a “financial and regulations that apply to us. holding company” and thereby to affiliate with financial companies engaging in a broader range of activities than BANK REGULATION would otherwise be permitted for a bank holding company. As a bank holding company and a financial holding company, Permitted affiliates include securities underwriters and we are subject to supervision and regular inspection by the dealers, insurance companies and companies engaged in other Federal Reserve. Our subsidiary banks and their subsidiaries activities that are determined by the Federal Reserve, in are subject to supervision and examination by applicable consultation with the Secretary of the Treasury, to be federal and state banking agencies, principally the OCC with “financial in nature or incidental thereto” or are determined by respect to PNC Bank, N.A. and National City Bank, and the the Federal Reserve unilaterally to be “complementary” to Federal Reserve Bank of Cleveland and the Office of the State financial activities. We became a financial holding company Bank Commissioner of Delaware with respect to PNC Bank, as of March 13, 2000. Delaware. The Federal Reserve is the “umbrella” regulator of a financial Because of PNC’s equity ownership interest in BlackRock, holding company, with its operating entities, such as its BlackRock is subject to the supervision and regulation of the subsidiary broker-dealers, investment managers, investment Federal Reserve. companies, insurance companies and banks, also subject to the jurisdiction of various federal and state “functional” regulators Parent Company Liquidity and Dividends. The principal with normal regulatory responsibility for companies in their source of our liquidity at the parent company level is lines of business. dividends from PNC Bank, N.A. and National City Bank. PNC Bank, N.A. and National City Bank are subject to As subsidiaries of a financial holding company under the GLB various federal and state restrictions on their ability to pay Act, our non-bank subsidiaries are allowed to conduct new dividends to PNC Bancorp, Inc., and PNC, respectively, the financial activities or acquire non-bank financial companies direct parents of the subsidiary banks. Our subsidiary banks with after-the-fact notice to the Federal Reserve. In addition, are also subject to federal laws limiting extensions of credit to our non-bank subsidiaries (and any financial subsidiaries of their parent holding company and non-bank affiliates as subsidiary banks) are now permitted to engage in certain discussed in Note 23 Regulatory Matters included in the Notes activities that were not permitted for banks and bank holding To Consolidated Financial Statements in Item 8 of this Report, companies prior to enactment of the GLB Act, and to engage which is incorporated herein by reference. Further information on less restrictive terms in certain activities that were on bank level liquidity and parent company liquidity and on previously permitted. Among other activities, we currently certain contractual restrictions is also available in the rely on our status as a financial holding company to conduct Liquidity Risk Management section and in the “Perpetual mutual fund distribution activities, merchant banking Trust Securities”, “PNC Capital Trust E Trust Preferred activities, and securities underwriting and dealing activities. Securities”, and “Acquired Entity Trust Preferred Securities” sections of the Off-Balance Sheet Arrangements and VIEs In addition, the GLB Act permits national banks, such as PNC section of Item 7 of this Report. Bank, N.A. and National City Bank, to engage in expanded activities through the formation of a “financial subsidiary.” In Under Federal Reserve policy, a bank holding company is order to qualify to establish or acquire a financial subsidiary, expected to act as a source of financial strength to each of its PNC Bank, N.A., National City Bank and PNC Bank, Delaware subsidiary banks and to commit resources to support each such must be “well capitalized” and “well managed” and may not bank. Consistent with the “source of strength” policy for have a less than “satisfactory” Community Reinvestment Act subsidiary banks, the Federal Reserve has stated that, as a (“CRA”) rating. A national bank that is one of the largest 50 matter of prudent banking, a bank holding company generally insured banks in the United States, such as PNC Bank, N.A. and should not maintain a rate of cash dividends unless its net National City Bank, must also have issued debt (which, for this income available to common shareholders has been sufficient to purpose, may include the uninsured portion of a national bank’s fully fund the dividends and the prospective rate of earnings long-term certificates of deposit) with certain minimum ratings. retention appears to be consistent with the corporation’s capital PNC Bank, N.A. and National City Bank have filed financial needs, asset quality and overall financial condition. Also, there subsidiary certifications with the OCC and currently engage in

6 insurance agency activities through financial subsidiaries. PNC this Report and to Note 23 Regulatory Matters included in the Bank, N.A. and National City Bank may also generally engage Notes To Consolidated Financial Statements in Item 8 of this through a financial subsidiary in any activity that is financial in Report. nature or incidental to a financial activity. Certain activities, however, are impermissible for a financial subsidiary of a Laws and regulations limit the scope of our permitted national bank, including insurance underwriting, insurance activities and investments. In addition to the activities that investments, real estate investment or development, and would be permitted to be conducted by a financial subsidiary, merchant banking. national banks (such as PNC Bank, N.A. and National City Bank) and their operating subsidiaries may engage in any Because of issues regarding the operations of National City activities that are determined by the OCC to be part of or Bank, PNC has entered into an agreement with the Federal incidental to the business of banking. Reserve, and PNC Bank, N.A. and National City Bank have entered into agreements with the OCC, pursuant to which we Moreover, examination ratings of “3” or lower, lower capital are providing a plan for National City Bank to address these ratios than peer group institutions, regulatory concerns issues. If PNC fails to satisfy the concerns of the regulators regarding management, controls, assets, operations or other within six-months of the acquisition of National City Bank factors, can all potentially result in practical limitations on the (that is, by June 30, 2009), and no extension of the time period ability of a bank or bank holding company to engage in new is granted, the Federal Reserve would have broad authority to activities, grow, acquire new businesses, repurchase its stock limit PNC’s activities, including a requirement that we or pay dividends, or to continue to conduct existing activities. conform existing non-banking activities to activities that were permissible prior to the enactment of the GLB Act. In The Federal Reserve’s prior approval is required whenever we addition, pursuant to the agreements with the OCC, the OCC propose to acquire all or substantially all of the assets of any could limit the activities of PNC Bank, N.A. and National City bank or thrift, to acquire direct or indirect ownership or Bank if the concerns are not addressed satisfactorily by control of more than 5% of the voting shares of any bank or June 30, 2009, or within any additional time granted by the thrift, or to merge or consolidate with any other bank holding OCC. PNC Bank, N.A. and National City Bank could be company or thrift holding company. When reviewing bank required to conform the activities of their financial acquisition applications for approval, the Federal Reserve subsidiaries to activities in which a national bank could considers, among other things, each subsidiary bank’s record engage directly. The potential impact of these consequences in meeting the credit needs of the communities it serves in for PNC and the two banks is primarily on the conduct of accordance with the CRA. Our ability to grow through existing merchant banking, securities underwriting and acquisitions could be limited by these approval requirements. dealing, and insurance activities that in part can be addressed through alternative means of conducting these activities and At December 31, 2008, PNC Bank, N.A., National City Bank, that in any event is not expected to be material to PNC’s and PNC Bank, Delaware were rated “outstanding” with consolidated business. respect to CRA.

Other Federal Reserve and OCC Regulation. The federal FDIC Insurance. All three of our domestic subsidiary banks banking agencies possess broad powers to take corrective action are insured by the FDIC and subject to premium assessments. as deemed appropriate for an insured depository institution and Regulatory matters could increase the cost of FDIC deposit its holding company. The extent of these powers depends upon insurance premiums to an insured bank as FDIC deposit whether the institution in question is considered “well insurance premiums are “risk based.” Therefore, higher fee capitalized,” “adequately capitalized,” “undercapitalized,” percentages would be charged to banks that have lower capital “significantly undercapitalized” or “critically undercapitalized.” ratios or higher risk profiles. These risk profiles take into Generally, the smaller an institution’s capital base in relation to account weaknesses that are found by the primary banking its risk-weighted assets, the greater the scope and severity of the regulator through its examination and supervision of the bank. agencies’ powers, ultimately permitting the agencies to appoint A negative evaluation by the FDIC or a bank’s primary federal a receiver for the institution. Business activities may also be banking regulator could increase the costs to a bank and result influenced by an institution’s capital classification. For instance, in an aggregate cost of deposit funds higher than that of only a “well capitalized” depository institution may accept competing banks in a lower risk category. brokered deposits without prior regulatory approval and an “adequately capitalized” depository institution may accept Our subsidiary banks are subject to “cross-guarantee” brokered deposits only with prior regulatory approval. At provisions under federal law that provide that if one of these December 31, 2008, each of our domestic subsidiary banks banks fails or requires FDIC assistance, the FDIC may assess exceeded the required ratios for classification as “well a “commonly-controlled” bank for the estimated losses capitalized.” For additional discussion of capital adequacy suffered by the FDIC. Such liability could have a material requirements, we refer you to “Funding and Capital Sources” in adverse effect on our financial condition or that of the the Consolidated Balance Sheet Review section of Item 7 of assessed bank. While the FDIC’s claim is junior to the claims

7 of depositors, holders of secured liabilities, general creditors fund industries, including Allegiant, Global Investment and subordinated creditors, it is superior to the claims of the Servicing and other industry participants. The SEC has bank’s shareholders and affiliates, including PNC and proposed various rules, and legislation has been introduced in intermediate bank holding companies. Congress, intended to reform the regulation of these industries. The effect of regulatory reform has, and is likely to SECURITIES AND RELATED REGULATION continue to, increase the extent of regulation of the mutual The SEC, together with either the OCC or the Federal fund and hedge fund industries and impose additional Reserve, regulates our registered broker-dealer subsidiaries. compliance obligations and costs on our subsidiaries involved These subsidiaries are also subject to rules and regulations with those industries. promulgated by the Financial Industry Regulatory Authority (“FINRA”), among others. Under provisions of the federal securities laws applicable to broker-dealers, investment advisers and registered investment Several of our subsidiaries are registered with the SEC as companies and their service providers, a determination by a investment advisers and provide services both directly to court or regulatory agency that certain violations have clients and to PNC affiliates and related entities, including occurred at a company or its affiliates can result in fines, registered investment companies. Our investment advisor restitution, a limitation of permitted activities, disqualification subsidiaries are subject to the requirements of the Investment to continue to conduct certain activities and an inability to rely Advisers Act of 1940, as amended, and the SEC’s regulations on certain favorable exemptions. Certain types of infractions thereunder. The principal purpose of the regulations and violations can also affect a public company in its timing applicable to investment advisers is the protection of clients and ability to expeditiously issue new securities into the and the securities markets, rather than the protection of capital markets. In addition, expansion of activities of a creditors and shareholders of investment advisors. The broker-dealer generally requires approval of FINRA and regulations applicable to investment advisers cover all aspects regulators may take into account a variety of considerations in of the investment advisory business, including limitations on acting upon such applications, including internal controls, the ability of investment advisers to charge performance-based capital, management experience and quality, prior or non-refundable fees to clients; record-keeping; operational, enforcement and disciplinary history and supervisory marketing and reporting requirements; disclosure concerns. requirements; limitations on principal transactions between an adviser or its affiliates and advisory clients; as well as general Global Investment Servicing and BlackRock are also subject anti-fraud prohibitions. These investment advisory to regulation by appropriate authorities in the foreign subsidiaries also may be subject to state securities laws and jurisdictions in which they do business. regulations.

In addition, our investment advisory subsidiaries that are BlackRock has subsidiaries in securities and related investment advisors to registered investment companies and businesses subject to SEC and FINRA regulation, as described other managed accounts are subject to the requirements of the above. For additional information about the regulation of Investment Company Act of 1940, as amended, and the SEC’s BlackRock, we refer you to the discussion under the regulations thereunder, including Allegiant Asset “Regulation” section of Item 1 Business in BlackRock’s most Management Company, a wholly-owned subsidiary of recent Annual Report on Form 10-K, which may be obtained National City Bank and registered investment advisor that electronically at the SEC’s website at www.sec.gov. serves as the investment advisor for the Allegiant mutual funds. Global Investment Servicing is subject to regulation by COMPETITION the SEC as a service provider to registered investment We are subject to intense competition from various financial companies. institutions and from non-bank entities that engage in similar activities without being subject to bank regulatory supervision Additional legislation, changes in rules promulgated by the and restrictions. SEC, other federal and state regulatory authorities and self- regulatory organizations, or changes in the interpretation or In making loans, our subsidiary banks compete with enforcement of existing laws and rules may directly affect the traditional banking institutions as well as consumer finance method of operation and profitability of investment advisers. companies, leasing companies and other non-bank lenders, The profitability of investment advisers could also be affected and institutional investors including CLO managers, hedge by rules and regulations that impact the business and financial funds, mutual fund complexes and private equity firms. Loan communities in general, including changes to the laws pricing, structure and credit standards are extremely important governing taxation, antitrust regulation and electronic in the current environment as we seek to achieve risk-adjusted commerce. returns. Traditional deposit activities are subject to pricing pressures and customer migration as a result of intense Over the past several years, the SEC and other governmental competition for consumer investment dollars. agencies have been investigating the mutual fund and hedge

8 Our subsidiary banks compete for deposits with the following: The SEC also maintains an internet website that contains • Other commercial banks, reports, proxy and information statements, and other • Savings banks, information about issuers, like us, who file electronically with • Savings and loan associations, the SEC. The address of that site is www.sec.gov. You can • Credit unions, also inspect reports, proxy statements and other information • Treasury management service companies, about us at the offices of the New York Stock Exchange, 20 • Insurance companies, and Broad Street, New York, New York 10005. • Issuers of commercial paper and other securities, including mutual funds. We also make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and Our various non-bank businesses engaged in investment amendments to those reports filed or furnished to the SEC banking and private equity activities compete with the pursuant to Section 13(a) or 15(d) of the Exchange Act following: available free of charge on or through our internet website as • Commercial banks, soon as reasonably practicable after we electronically file such • Investment banking firms, material with, or furnish it to, the SEC. PNC’s corporate • Merchant banks, internet address is www.pnc.com and you can find this • Insurance companies, information at www.pnc.com/secfilings. Shareholders and • Private equity firms, and bondholders may also obtain copies of these filings without • Other investment vehicles. charge by contacting Shareholder Services at 800-982-7652 or via the online contact form at www.computershare.com/ In providing asset management services, our businesses contactus for copies without exhibits, or by contacting compete with the following: Shareholder Relations at 800- 843-2206 or via e-mail at • Investment management firms, [email protected] for copies of exhibits. • Large banks and other financial institutions, • Brokerage firms, We filed the certifications of our Chairman and Chief • Mutual fund complexes, and Executive Officer and our Chief Financial Officer required • Insurance companies. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 The fund servicing business is also highly competitive, with a with respect to our Annual Report on Form 10-K for 2007 relatively small number of providers. Merger, acquisition and with the SEC as exhibits to that report and have filed the CEO consolidation activity in the financial services industry has and CFO certifications required by Section 302 of that Act also impacted the number of existing or potential fund with respect to this Form 10-K as exhibits to this Report. servicing clients and has intensified competition. Information about our Board and its committees and corporate We include here by reference the additional information governance at PNC is available on PNC’s corporate website at regarding competition included in the Item 1A Risk Factors www.pnc.com/corporategovernance. Shareholders who would section of this Report. like to request printed copies of the PNC Code of Business Conduct and Ethics or our Corporate Governance Guidelines EMPLOYEES Period-end employees totaled 59,595 at or the charters of our Board’s Audit, Nominating and December 31, 2008. This total includes 25,313 full-time and Governance, or Personnel and Compensation Committees (all 2,908 part-time PNC legacy employees and 27,112 full-time of which are posted on the PNC corporate website) may do so and 4,262 part-time National City employees. by sending their requests to George P. Long, III, Corporate SEC REPORTS AND CORPORATE GOVERNANCE Secretary, at corporate headquarters at One PNC Plaza, 249 INFORMATION Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707. Copies We are subject to the informational requirements of the will be provided without charge to shareholders. Securities Exchange Act of 1934, as amended (“Exchange Act”), and, in accordance with the Exchange Act, we file Our common stock is listed on the New York Stock Exchange annual, quarterly and current reports, proxy statements, and (“NYSE”) under the symbol “PNC.” Our Chairman and Chief other information with the SEC. Our SEC File Number is Executive Officer submitted the required annual CEO 001-09718. You may read and copy this information at the Certification regarding the NYSE’s corporate governance SEC’s Public Reference Room located at 100 F Street NE, listing standards (a Section 12(a) CEO Certification) to the Room 1580, Washington, D.C. 20549. You can obtain NYSE within 30 days after our 2008 annual shareholders information on the operation of the Public Reference Room by meeting. calling the SEC at 1-800-SEC-0330. INTERNET INFORMATION You can also obtain copies of this information by mail from The PNC Financial Services Group, Inc.’s financial reports the Public Reference Section of the SEC, 100 F Street, NE, and information about its products and services are available Washington, D.C. 20549, at prescribed rates. on the internet at www.pnc.com. We provide information for

9 investors in portions of our corporate website, such as the our Consolidated Balance Sheet at December 31, 2008 did not Investor Events and Financial Information areas that you can reflect that desired risk profile. However, we remain find under “About PNC – Investor Relations”. In this section, committed to a moderate risk profile and we are working hard we will from time to time post information that we believe to bring our risk issues back into alignment. We discuss our may be important or useful to investors. We generally post the principal risk management processes and, in appropriate following shortly before or promptly following its first use or places, related historical performance in the Risk Management release: financially-related press releases (including earnings section included in Item 7 of this Report. releases), various SEC filings, presentation materials associated with earnings and other investor conference calls or The following are the key risk factors that affect us. These risk events, and access to live and taped audio from such calls or factors and other risks are also discussed further in other parts events. When warranted, we will also use our website to of this Report. expedite public access to time-critical information regarding PNC in advance of distribution of a press release or a filing Risks related to current economic conditions with the SEC disclosing the same information. You can also The continuation or worsening of current recessionary find the SEC reports and corporate governance information conditions, as well as continued turmoil in the financial described in the section above in the Investor Relations markets, would likely have an adverse effect on our section of our website. business, financial position and results of operations. The economy in the United States and globally is currently in Where we have included web addresses in this Report, such as the midst of a severe recession. This economic situation has our web address and web addresses of the SEC and of been accompanied by disruption and turmoil in financial BlackRock, we have included those web addresses as inactive markets around the world. Throughout much of the United textual references only. Except as specifically incorporated by States, the past two years have seen dramatic declines in the reference into this Report, information on those websites is housing market, with falling home prices and increasing not part hereof. foreclosures. The deepening recession has led to increased unemployment and underemployment. Businesses across ITEM 1A – RISK FACTORS many industries are showing reduced earnings or in some cases losses, with reduced investments in growth. We are subject to a number of risks potentially impacting our business, financial condition, results of operations and cash For the financial services industry, this overall environment flows. Indeed, as a financial services organization, certain has resulted in significant write-downs of asset values, elements of risk are inherent in every one of our transactions initially of mortgage-backed securities but spreading to other and are present in every business decision we make. Thus, we derivative and cash securities. Affected institutions include encounter risk as part of the normal course of our business, commercial and investment banks as well as government- and we design risk management processes to help manage sponsored entities. The impact of this situation has led to these risks. distress in credit markets, reduced liquidity for many types of securities, and concerns regarding the financial strength and There are risks that are known to exist at the outset of a adequacy of the capitalization of financial institutions. Some transaction. For example, every loan transaction presents financial institutions around the world have failed, some have credit risk (the risk that the borrower may not perform in needed significant additional capital, and others have been accordance with contractual terms) and interest rate risk (a forced to seek acquisition partners. potential loss in earnings or economic value due to adverse movement in market interest rates or credit spreads), with the Reflecting concern about the stability of the financial markets nature and extent of these risks principally depending on the generally and the strength of counterparties, as well as identity of the borrower and overall economic conditions. concern about their own capital and liquidity positions, many These risks are inherent in every loan transaction; if we wish lenders and institutional investors have reduced or ceased to make loans, we must manage these risks through the terms providing funding to borrowers. The resulting economic and structure of the loans and through management of our pressure on consumers and businesses and the lack of deposits and other funding sources. confidence in the financial markets has exacerbated the state of economic distress and hampered efforts to bring about an Risk management is an important part of our business model. economic recovery and restore stability to financial markets. The success of our business is dependent on our ability to identify, understand and manage the risks presented by our The United States and other governments have taken business activities so that we can balance appropriately unprecedented steps to try to stabilize the financial system, revenue generation and profitability with these inherent risks. including making significant investments in financial Our shareholders have been well served by our focus on institutions and guaranteeing or otherwise supporting troubled maintaining a moderate risk profile. With an economy in assets held by financial institutions. The new Obama severe recession and our recent acquisition of National City, administration and the U.S. Congress are actively seeking

10 ways of providing economic stimulus and financial market • Competition in our industry could intensify as a stability, including the recent enactment of the Recovery Act. result of the increasing consolidation of financial services companies in connection with current market These economic conditions have had an adverse effect on our conditions. Governmental support provided to business and financial performance. We do not expect that the financial institutions could alter the competitive weakened economy or difficult conditions in the financial landscape. markets are likely to improve meaningfully in the near future, • Increased regulation of compensation at financial and we expect those conditions to have an ongoing negative services companies as part of government efforts to impact on us. A worsening or prolonged continuation of these reform the industry may hinder our ability to attract conditions would likely aggravate the adverse effects of these and retain well-qualified individuals in key positions. difficult economic and market conditions on us and on others • We may be required to pay significantly higher in the financial institutions industry. Federal Deposit Insurance Corporation premiums In particular, we may face the following risks in connection because market developments have significantly with the current economic and market environment: depleted the insurance fund of the FDIC and reduced • Proposals to permit bankruptcy courts to adjust the the ratio of reserves to insured deposits. terms of home mortgage obligations of people in proceedings before them may adversely impact the Some of these risks are discussed in more detail below. value of mortgages and mortgage-backed securities held by us, including, in the case of securities, by The continuation of current recessionary conditions would affecting the protections offered by subordination likely adversely affect our lending businesses and the value provisions. of the loans and debt securities we hold. • We expect to face increased regulation of our Given the high percentage of our assets represented, directly industry, including as a result of the EESA, the or indirectly, by loans and the importance of lending to our Recovery Act and other current or future initiatives to overall business, continued recessionary conditions are likely provide economic stimulus, financial market stability to have a negative impact on our business, our ability to serve and enhanced regulation of financial services our customers and our results of operations. Such conditions companies. Compliance with such regulation may are likely to lead to increases in the number of borrowers who increase our costs and limit our ability to pursue become delinquent or default or otherwise demonstrate a business opportunities. decreased ability to meet their obligations under their loans. • Investors may have less confidence in the equity This would result in higher levels of non-performing loans, markets in general and in financial services industry net charge-offs, provision for credit losses and valuation stocks in particular, which could place downward adjustments on loans held for sale. The value to us of other pressure on PNC’s stock price and resulting market assets such as investment securities, most of which are debt valuation. securities or represent securitizations of loans, similarly would • Market developments may further affect consumer be negatively impacted by widespread decreases in credit and business confidence levels and may cause quality resulting from a weak economy. declines in credit usage and adverse changes in payment patterns, causing increases in delinquencies Our regional concentration makes us particularly at risk and default rates. for economic conditions in our primary retail banking • Our ability to assess the creditworthiness of our footprint. customers may be impaired if the models and approaches we use to select, manage, and underwrite Although many of our businesses are national and some are our customers become less predictive of future international in scope, our retail banking business is behaviors. concentrated within our retail branch network footprint (for • The process we use to estimate losses inherent in our the past several years, Delaware, Indiana, Kentucky, credit exposure requires difficult, subjective, and Maryland, New Jersey, Ohio, Pennsylvania, Virginia and complex judgments, including the review of Washington, D.C., and, with our recent acquisition of National economic conditions and how these economic City, now including Florida, Illinois, Michigan, Missouri and conditions might impair the ability of our borrowers Wisconsin). Thus, we are particularly vulnerable to adverse to repay their loans, which may no longer be capable changes in economic conditions in these states or the of accurate estimation, which may, in turn, impact Mid-Atlantic and Midwest regions more generally. the reliability of the process. • We could suffer decreases in customer desire to do Our business and performance are vulnerable to the business with us, whether as a result of a decreased impact of continued volatility in debt and equity markets. demand for loans or other financial products and services or decreased deposits or other investments in As most of our assets and liabilities are financial in nature, we accounts with PNC. tend to be particularly sensitive to the performance of the

11 financial markets. Starting in the middle of 2007, there has have a material effect on our business, our profitability and the been significant turmoil and volatility in worldwide financial value of our financial assets and liabilities. For example: markets, which is, at present, ongoing. This turmoil and • Movements in interest rates affect mortgage volatility are a contributory factor to overall economic prepayment speeds and could result in impairments conditions, leading to some of the risks discussed above, of mortgage servicing assets. including impairing the ability of borrowers and other • Changes in interest rates or interest rate spreads can counterparties to meet obligations to us. Financial market affect the difference between the interest that we earn volatility also can have some of the following adverse effects on assets and the interest that we pay on liabilities, on PNC and our business and financial performance: which impacts our overall net interest income. • It can affect the value or liquidity of our on-balance • Such changes can affect the ability of borrowers to sheet and off-balance sheet financial instruments. meet obligations under variable or adjustable rate • It can affect the value of servicing rights that we debt instruments. acquire and carry at fair value, such as the residential • Such changes may decrease the demand for interest- mortgage servicing rights acquired in the National rate based products and services, including loans and City transaction. deposit accounts. • It can affect, to the extent we access capital markets • Such changes can also affect our ability to hedge to raise funds to support our business and overall various forms of market and interest rate risk and liquidity position, the cost of such funds or our ability may decrease the profitability or increase the risk to raise such funds. The inability to access capital associated with such hedges. markets at a desirable cost could affect our liquidity or results of operations. The monetary, tax and other policies of the government and its • It can affect the value of the assets that we manage or agencies, including the Federal Reserve, have a significant otherwise administer for others or the assets for impact on interest rates and overall financial market which we provide processing and information performance. These governmental policies can thus affect the services. Although we are not directly impacted by activities and results of operations of banking companies such changes in the value of assets that we manage or as PNC. An important function of the Federal Reserve is to administer for others or for which we provide regulate the national supply of bank credit and market interest processing and information services, decreases in the rates. The actions of the Federal Reserve influence the rates of value of those assets would affect our fee income interest that we charge on loans and that we pay on relating to those assets and could result in decreased borrowings and interest-bearing deposits and can also affect demand for our services. the value of our on-balance sheet and off-balance sheet • It can affect the required funding of our pension financial instruments. Both due to the impact on rates and by obligations to the extent that the value of the assets controlling access to direct funding from the Federal Reserve supporting those obligations drops below minimum Banks, the Federal Reserve’s policies also influence, to a levels. significant extent, our cost of funding. We cannot predict the • In general, it can impact the nature, profitability or nature or timing of future changes in monetary, tax and other risk profile of the financial transactions in which we policies or the effect that they may have on our activities and engage. results of operations.

Volatility in the markets for real estate and other assets The soundness of other financial institutions could commonly securing financial products has been and is likely adversely affect us. to continue to be a significant contributor to overall volatility in financial markets. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have Our business and financial performance is impacted exposure to many different industries and counterparties, and significantly by market interest rates and movements in we routinely execute transactions with counterparties in the those rates. The monetary, tax and other policies of financial services industry, including brokers and dealers, governmental agencies, including the Federal Reserve, commercial banks, investment banks, mutual and hedge funds, have a significant impact on interest rates and overall and other institutional clients. Many of these transactions financial market performance over which we have no expose us to credit risk in the event of default of our control and which we may not be able to predict counterparty or client. In addition, our credit risk may be adequately. exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full As a result of the high percentage of our assets and liabilities amount of the loan or derivative exposure due us. There can that are in the form of interest-bearing or interest-related be no assurance that any such losses would not materially and instruments, changes in interest rates, in the shape of the yield adversely affect our results of operations or earnings. curve or in spreads between different market interest rates can

12 Actions taken by the federal government to stabilize the achieve the anticipated benefits of the merger. U.S. financial system and provide economic stimulus may Integration efforts between the two companies will not succeed. also divert management attention and resources. Successful integration may also be hampered by Given the recent financial market turmoil, particularly in the cultural differences between the two organizations. last several months, the federal government has taken Further, PNC agreed, in connection with obtaining numerous steps to stabilize the US financial system, both regulatory approvals for the National City through legislative and regulatory action. The steps include acquisition, to divest 61 of National City Bank’s passage of EESA and actions taken by the US Department of branches in Western Pennsylvania and this process is the Treasury thereafter to implement EESA, as well as the also underway. recent enactment of the Recovery Act. Legislative and • In recent periods, National City’s results had been regulatory initiatives to provide economic stimulus, financial impacted negatively by a significant amount of asset market stability and financial market regulatory reform have impairments. Our results following the acquisition been proposed or are pending (including some that have will depend on our ability to manage these assets, modified or would modify EESA), and more are anticipated which require special servicing and management going forward. What steps the government will take, the oversight, including disposition if appropriate. As the manner in which they will be implemented and the actual integration process develops, we may identify other impact they will have on the economy and financial markets issues with respect to National City’s asset valuation are uncertain. The failure of these governmental actions to or accounting procedures that may lead to further help stabilize the financial markets and the U.S. economy, and impairments or write-downs. the potential impact of compliance with government • National City’s pre-acquisition financial performance regulations undertaken in connection with such actions on our and resulting stock price performance and other costs and our ability to pursue business opportunities, could pre-acquisition activities have led to several lawsuits materially and adversely affect our business, financial and governmental investigations, and more may be condition, results of operations, access to credit, or the trading commenced in the future. As a result of this price of our common stock. acquisition, we now bear the risks associated with lawsuits and governmental investigations relating to Risks resulting from recent transactions National City, the full extent of the potential adverse Our acquisition of National City presents substantial risks impact of which cannot currently be predicted with and uncertainties, which could limit our ability to realize reasonable certainty. See Note 24 Legal Proceedings the anticipated benefits from this transaction. in the Notes to Consolidated Financial Statements in Item 8 of this Report for additional information. On December 31, 2008, we acquired National City through a Our issuance of securities to the US Department of the merger in which PNC continued as the surviving entity. We Treasury may limit our ability to return capital to our provide additional information about this acquisition in Note 2 shareholders and is dilutive to our common shares. Also, Acquisitions and Divestitures included in the Notes To the dividend rate increases substantially after five years if Consolidated Financial Statements in Item 8 of this Report. we are unable to redeem the shares by that time. This acquisition presents the following risks to PNC: In connection with our sale of $7.6 billion of senior preferred • Like PNC, National City was a large financial stock to the US Department of the Treasury on December 31, institution and has retail and other banking operations 2008, we also issued the US Department of the Treasury a in numerous markets in which PNC had little or no warrant to purchase approximately 17 million shares of our experience. National City also had major operations common stock at $67.33 per share. The terms of the in areas in which PNC did not have a significant transaction with the Department of the Treasury result in presence, including residential mortgage lending, limitations on our ability to pay dividends and repurchase our residential mortgage servicing, credit card lending shares. For three years after issuance or until the Department and equipment leasing. As a result of these factors, of the Treasury no longer holds any preferred shares, we will there are significant integration-related risks, which not be able to increase our dividends above the most recent are greater than in other recent acquisitions by PNC. level prior to October 14, 2008 ($.66 per common share on a • Prior to completion of the merger, PNC and National quarterly basis) nor repurchase any of our shares without the City operated as separate independent entities. The Department of the Treasury’s approval with limited integration process may result in the loss of key exceptions, most significantly purchases in connection with employees, the disruption of either company’s benefit plans. Also, we will not be able to pay any dividends at ongoing businesses or inconsistencies in standards, all unless we are current on our dividend payments on the controls, procedures, and policies that adversely preferred shares. These restrictions, as well as the dilutive affect our ability to maintain relationships with impact of the warrant, may have an adverse effect on the clients, customers, depositors, and employees or to market price of our common stock.

13 Unless we are able to redeem the preferred stock during the A failure to address adequately the competitive pressures we first five years, the dividends on this capital will increase face could make it harder for us to attract and retain customers substantially at that point, from 5% (almost $400 million across our businesses. On the other hand, meeting these annually) to 9% (almost $700 million annually). Depending competitive pressures could require us to incur significant on market conditions and our financial performance at the additional expenses or to accept risk beyond what we would time, this increase in dividends could significantly impact our otherwise view as desirable under the circumstances. In capital and liquidity. addition, in our interest sensitive businesses, pressures to increase rates on deposits or decrease rates on loans could The US Department of the Treasury has the unilateral reduce our net interest margin with a resulting negative impact ability to change some of the restrictions imposed on us by on our net interest income. Any of these results would likely virtue of our sale of securities to it. have an adverse effect on our overall financial performance.

Our agreement with the US Department of the Treasury under We grow our business in part by acquiring from time to which it purchased our securities imposes restrictions on our time other financial services companies, and these conduct of our business, including restrictions related to our acquisitions present us with a number of risks and payment of dividends and repurchase of our stock and related uncertainties related both to the acquisition transactions to our executive compensation and governance. The US themselves and to the integration of the acquired Department of the Treasury has the right under this agreement businesses into PNC after closing. to unilaterally amend it to the extent required to comply with Acquisitions of other financial services companies in general any future changes in federal statutes. The Recovery Act present risks to PNC in addition to those presented by the amended provisions of EESA relating to compensation and nature of the business acquired. We describe some of the governance as they affect companies such as PNC that have integration risks presented by our recent acquisition of sold securities to the US Department of the Treasury. In some National City above. Many of these risks are common to some cases, these amendments require action by the US Department extent in acquisition transactions. of the Treasury to implement them. These amendments could have an adverse impact on the conduct of our business, as In general, acquisitions may be substantially more expensive could additional amendments in the future that impose further to complete (including as a result of costs incurred in requirements or amend existing requirements. connection with the integration of the acquired company) and the anticipated benefits (including anticipated cost savings and Risks related to the ordinary course of PNC’s business strategic gains) may be significantly harder or take longer to We operate in a highly competitive environment, both in achieve than expected. In some cases, acquisitions involve our terms of the products and services we offer, the geographic entry into new businesses or new geographic or other markets, markets in which we conduct business, as well as our labor and these situations also present risks resulting from our markets and competition for talented employees. inexperience in these new areas. As a regulated financial Competition could adversely impact our customer institution, our pursuit of attractive acquisition opportunities acquisition, growth and retention, as well as our credit could be negatively impacted due to regulatory delays or other spreads and product pricing, causing us to lose market regulatory issues. Regulatory and/or legal issues relating to the share and deposits and revenues. pre-acquisition operations of an acquired business may cause reputational harm to PNC following the acquisition and integration of the acquired business into ours and may result We are subject to intense competition from various financial in additional future costs or regulatory limitations arising as a institutions as well as from non-bank entities that engage in result of those issues. similar activities without being subject to bank regulatory supervision and restrictions. This competition is described in The performance of our asset management businesses may Item 1 of this Report under “Competition.” be adversely affected by the relative performance of our products compared with alternative investments as well as In all, the principal bases for competition are pricing (including by overall economic and market conditions. the interest rates charged on loans or paid on interest-bearing deposits), product structure, the range of products and services Asset management revenue is primarily based on a percentage offered, and the quality of customer service (including of the value of assets under management and, in some cases, convenience and responsiveness to customer needs and performance fees, in most cases expressed as a percentage of concerns). The ability to access and use technology is an the returns realized on assets under management, and thus is increasingly important competitive factor in the financial impacted by general changes in capital markets valuations as services industry. Technology is important not only with respect well as by customer preferences and needs. In addition, to delivery of financial services but also in processing investment performance is an important factor influencing the information. Each of our businesses consistently must make level of assets under management. Poor investment significant technological investments to remain competitive. performance could impair revenue and growth as existing

14 clients might withdraw funds in favor of better performing to repurchase stock or to receive dividends from subsidiaries products. Also, performance fees could be lower or that operate in the banking and securities business and impose nonexistent. Additionally, the ability to attract funds from capital adequacy requirements. They also restrict permissible existing and new clients might diminish. Overall economic activities and investments and require compliance with conditions may limit the amount that customers are able or protections for loan, deposit, brokerage, fiduciary, mutual willing to invest. fund and other customers, and for the protection of customer information, among other things. The consequences of The failure or negative performance of products of other noncompliance can include substantial monetary and financial institutions could lead to a loss of confidence in nonmonetary sanctions as well as damage to our reputation similar products offered by us without regard to the and businesses. performance of our products. Such a negative contagion could lead to withdrawals, redemptions and liquidity issues in such In addition, we are subject to comprehensive examination and products and have a material adverse impact on our assets under supervision by banking and other regulatory bodies. management and asset management revenues and earnings. Examination reports and ratings (which often are not publicly available) and other aspects of this supervisory framework can The performance of our fund servicing business may be materially impact the conduct, growth, and profitability of our adversely affected by changes in investor preferences, or businesses. changes in existing or potential fund servicing clients or alternative providers. Due to the current economic environment and issues facing the financial services industry, as well as the effect of the Fund servicing fees are primarily derived from the market change from the Bush to the Obama administration, we value of the assets and the number of shareholder accounts anticipate new legislative and regulatory initiatives over the that we administer for our clients. The performance of our next several years, including many focused specifically on fund processing business is thus partially dependent on the banking and other financial services in which we are engaged. underlying performance of its fund clients and, in particular, These initiatives will be in addition to the actions already their ability to attract and retain customers. Changes in interest taken by Congress and the regulators, including EESA and the rates or a sustained weakness, weakening or volatility in the Recovery Act. Developments to date, as well as those that debt and equity markets could (in addition to affecting directly come in the future, have had and are likely to continue to have the value of assets administered as discussed above) influence an impact on the conduct of our business. This impact could an investor’s decision to invest or maintain an investment in a include rules and regulations that affect the nature and particular mutual fund or other pooled investment product. profitability of our business activities, how we use our capital, Other factors beyond our control may impact the ability of our how we compensate and incent our employees and other fund clients to attract or retain customers or customer funds, matters potentially having a negative effect on our overall including changes in preferences as to certain investment business results and prospects. styles. Further, to the extent that our fund clients’ businesses are adversely affected by ongoing governmental investigations Under the regulations of the Federal Reserve, a bank holding into the practices of the mutual and hedge fund industries, our company is expected to act as a source of financial strength fund processing business’ results also could be adversely for its subsidiary banks. As a result of this regulatory policy, impacted. As a result of these types of factors, fluctuations the Federal Reserve might require PNC to commit resources may occur in the level or value of assets for which we provide to its subsidiary banks when doing so is not otherwise in the processing services. In addition, this regulatory and business interests of PNC or its shareholders or creditors. environment is likely to continue to result in operating margin pressure for our various services. Our ability to pay dividends to shareholders is largely As a regulated financial services firm, we are subject to dependent on dividends from our operating subsidiaries, numerous governmental regulations and to comprehensive principally our banking subsidiaries. Banks are subject to examination and supervision by regulators, which affects regulation on the amount and circumstances of dividends they our business as well as our competitive position. can pay to their holding companies. At present, National City Bank does not have any ability to pay dividends, so we are PNC is a bank and financial holding company and is subject to primarily relying on PNC Bank, N.A.’s dividend capacity to numerous governmental regulations involving both its support our external dividends. business and organization. PNC services its obligations primarily with dividends and advances that it receives from its We discuss these and other regulatory issues applicable to subsidiaries. PNC in the Supervision and Regulation section included in Item 1 of this Report and in Note 23 Regulatory Matters in the Our businesses are subject to regulation by multiple bank Notes To Consolidated Financial Statements in Item 8 of this regulatory bodies as well as multiple securities industry Report and here by reference. regulators. Applicable laws and regulations restrict our ability

15 Over the last several years, there has been an increasing Our asset valuation may include methodologies, regulatory focus on compliance with anti-money laundering estimations and assumptions that are subject to differing laws and regulations, resulting in, among other things, several interpretations and could result in changes to asset significant publicly-announced enforcement actions. There valuations that may materially adversely affect our results has also been a heightened focus recently, by customers and of operations or financial condition. the media as well as by regulators, on the protection of We must use estimates, assumptions, and judgments when confidential customer information. A failure to have adequate financial assets and liabilities are measured and reported at procedures to comply with anti-money laundering laws and fair value. Assets and liabilities carried at fair value inherently regulations or to protect the confidentiality of customer result in a higher degree of financial statement volatility. Fair information could expose us to damages, fines and regulatory values and the information used to record valuation penalties, which could be significant, and could also injure our adjustments for certain assets and liabilities are based on reputation with customers and others with whom we do quoted market prices and/or other observable inputs provided business. by independent third-party sources, when available. When such third-party information is not available, we estimate fair We must comply with generally accepted accounting value primarily by using cash flows and other financial principles established by the Financial Accounting modeling techniques utilizing assumptions such as credit Standards Board, accounting, disclosure and other rules quality, liquidity, interest rates and other relevant inputs. set forth by the SEC, income tax and other regulations Changes in underlying factors, assumptions, or estimates in established by the US Department of the Treasury, and any of these areas could materially impact our future financial revenue rulings and other guidance issued by the Internal condition and results of operations. Revenue Service, which affect our financial condition and results of operations. During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening Changes in accounting standards, or interpretations of those credit spreads or illiquidity, it may be difficult to value certain standards, can impact our revenue recognition and expense of our assets if trading becomes less frequent and/or market policies and affect our estimation methods used to prepare the data becomes less observable. There may be certain asset consolidated financial statements. Changes in income tax classes that were in active markets with significant observable regulations, revenue rulings, revenue procedures, and other data that become illiquid due to the current financial guidance can impact our tax liability and alter the timing of environment. In such cases, certain asset valuations may cash flows associated with tax deductions and payments. New require more subjectivity and management judgment. As such, guidance often dictates how changes to standards and valuations may include inputs and assumptions that are less regulations are to be presented in our consolidated financial observable or require greater estimation. Further, rapidly statements, as either an adjustment to beginning retained changing and unprecedented credit and equity market earnings for the period or as income or expense in current conditions could materially impact the valuation of assets as period earnings. In some cases, changes may be applied to reported within our consolidated financial statements, and the previously reported disclosures. period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on our The determination of the amount of loss allowances and results of operations or financial condition. impairments taken on our assets is highly subjective and Our business and financial performance could be adversely could materially impact our results of operations or affected, directly or indirectly, by natural disasters, by financial position. terrorist activities or by international hostilities. The determination of the amount of loss allowances and asset The impact of natural disasters, terrorist activities and impairments varies by asset type and is based upon our international hostilities cannot be predicted with respect to periodic evaluation and assessment of known and inherent severity or duration. However, any of these could impact us risks associated with the respective asset class. Such directly (for example, by causing significant damage to our evaluations and assessments are revised as conditions change facilities or preventing us from conducting our business in the and new information becomes available. Management updates ordinary course), or could impact us indirectly through a its evaluations regularly and reflects changes in allowances direct impact on our borrowers, depositors, other customers, and impairments in operations as such evaluations are revised. suppliers or other counterparties. We could also suffer adverse There can be no assurance that our management has consequences to the extent that natural disasters, terrorist accurately assessed the level of impairments taken and activities or international hostilities affect the economy and allowances reflected in our financial statements. Furthermore, capital and other financial markets generally. These types of additional impairments may need to be taken or allowances impacts could lead, for example, to an increase in provided for in the future. Historical trends may not be delinquencies, bankruptcies or defaults that could result in our indicative of future impairments or allowances. experiencing higher levels of nonperforming assets, net charge-offs and provisions for credit losses.

16 Our ability to mitigate the adverse consequences of such special meeting, if necessary or appropriate, to solicit occurrences is in part dependent on the quality of our resiliency additional proxies, in the event that there were not sufficient planning, including our ability to anticipate the nature of any votes at the time of the special meeting to approve the such event that occurs. The adverse impact of natural disasters proposal described under (1) above. or terrorist activities or international hostilities also could be increased to the extent that there is a lack of preparedness on the Based on a total of approximately 348.5 million eligible votes, part of national or regional emergency responders or on the part approximately 266 million votes, or 76% of the total, were of other organizations and businesses that we deal with, cast. The votes cast included votes for or against either particularly those that we depend upon. proposal, as well as abstentions.

ITEM 1B – UNRESOLVED STAFF COMMENTS The proposal to approve the issuance of shares of PNC common stock in connection with PNC’s acquisition of There are no SEC staff comments regarding PNC’s periodic or National City was ratified and the aggregate votes cast for or current reports under the Exchange Act that are pending against and the abstentions were as follows: resolution. Aggregate Votes For Against Abstain ITEM 2–PROPERTIES 262,287,739 3,057,391 634,073 Our executive and administrative offices are located at One PNC Plaza, Pittsburgh, Pennsylvania. The thirty-story The proposal to approve the adjournment of the special structure is owned by PNC Bank, N. A. We occupy the entire meeting, if necessary, was ratified and the aggregate votes cast building. In addition, PNC Bank, N.A. owns a thirty-four story for or against and the abstentions were as follows (there were structure adjacent to One PNC Plaza, known as Two PNC also 1,550 non-votes):

Plaza, that houses additional office space. Aggregate Votes For Against Abstain We own or lease numerous other premises for use in 240,665,800 24,585,286 726,567 conducting business activities, including operations centers, offices, and branch and other facilities. We consider the With respect to all of the preceding matters, holders of our facilities owned or occupied under lease by our subsidiaries to common and voting preferred stock voted together as a single be adequate. We include here by reference the additional class. The following table sets forth, as of the November 14, information regarding our properties in Note 11 Premises, 2008 record date, the number of shares of each class or series Equipment and Leasehold Improvements in the Notes To of stock that were issued and outstanding and entitled to vote, Consolidated Financial Statements in Item 8 of this Report. the voting power per share, and the aggregate voting power of each class or series: ITEM 3–LEGAL PROCEEDINGS Number of See the information set forth in Note 24 Legal Proceedings Voting Rights Shares Entitled Aggregate Title of Class or Series Per Share to Vote Voting Power included in the Notes to Consolidated Financial Statements in Common Stock 1 347,960,466 347,960,466 Item 8 of this Report, which is incorporated here by reference. $1.80 Cumulative National City has agreed to pay a penalty of $200,000 Convertible Preferred Stock – imposed under section 6707 A(b)(2) of the Internal Revenue Series A 8 6,540 52,320 Code for failure to include certain reportable transaction $1.80 Cumulative information in its 2004 federal income tax return related to a Convertible listed transaction. We expect to pay the penalty in 2009. Preferred Stock – Series B 8 1,137 9,096 ITEM 4–SUBMISSION OF MATTERS TO A VOTE OF $1.60 Cumulative SECURITY HOLDERS Convertible Preferred Stock – A special meeting of shareholders of The PNC Financial Series C 4/2.4 119,126 198,543 Services Group, Inc. was held on December 23, 2008 for the $1.80 Cumulative purpose of considering and acting upon the following matters: Convertible Preferred Stock – (1) a proposal to approve the issuance of shares of PNC Series D 4/2.4 170,761 284,602 common stock as contemplated by the Agreement and Plan of Merger, dated as of October 24, 2008, by and between The Total possible votes 348,505,027* PNC Financial Services Group, Inc. and National City * Represents greatest number of votes possible. Actual aggregate voting power was less since each holder of voting preferred stock was entitled to a number of votes equal to Corporation, as such agreement may be amended from time to the number of full shares of common stock into which such holder’s preferred stock time; and (2) a proposal to approve the adjournment of the was convertible.

17 EXECUTIVE OFFICERS OF THE REGISTRANT Information Michael J. Hannon was appointed Executive Vice President regarding each of our executive officers as of February 17, and Chief Risk Officer in February 2009 and was previously 2009 is set forth below. Executive officers do not have a Senior Vice President and Chief Credit Officer. stated term of office. Each executive officer has held the position or positions indicated or another executive position Richard J. Johnson joined PNC in December 2002 and served with the same entity or one of its affiliates for the past five as Senior Vice President and Director of Finance until his years unless otherwise indicated below. appointment as Chief Financial Officer of the Corporation effective in August 2005. He was appointed Executive Vice Year President in February 2009. Name Age Position with PNC Employed (1) James E. Rohr 60 Chairman and Chief 1972 Helen P. Pudlin was appointed Executive Vice President and Executive Officer (2) Joseph C. Guyaux 58 President 1972 General Counsel in February 2009 and was previously Senior William S. Demchak 46 Senior Vice Chairman 2002 Vice President and General Counsel. Timothy G. Shack 58 Vice Chairman 1976 Thomas K. Whitford 52 Vice Chairman 1983 Robert Q. Reilly joined PNC Bank, N.A. in September 1987. Joan L. Gulley 61 Executive Vice 1986 President and Chief He serves as the lead of PNC’s wealth management business, Human Resources and in February 2009 he was appointed Executive Vice Officer President of PNC. Michael J. Hannon 52 Executive Vice 1982 President and Chief Risk Officer John J. Wixted, Jr. joined PNC as Senior Vice President and Richard J. Johnson 52 Executive Vice 2002 Chief Regulatory Officer in August 2002. From May 2007 President and Chief until February 2009, he also served as Chief Risk Officer. Financial Officer Helen P. Pudlin 59 Executive Vice 1989 President and DIRECTORS OF THE REGISTRANT The name, age and General Counsel principal occupation of each of our directors as of Robert Q. Reilly 44 Executive Vice 1987 February 17, 2009, and the year he or she first became a President Samuel R. Patterson 50 Senior Vice President 1986 director is set forth below: and Controller • Richard O. Berndt, 66, Managing Partner of John J. Wixted, Jr. 57 Senior Vice President 2002 Gallagher, Evelius & Jones LLP (law firm) (2007) (1) Where applicable, refers to year employed by predecessor company. • Charles E. Bunch, 59, Chairman and Chief Executive (2) Also serves as a director of PNC. Officer of PPG Industries, Inc. (coatings, sealants and glass products) (2007) William S. Demchak was appointed Senior Vice Chairman in • Paul W. Chellgren, 66, Operating Partner, SPG February 2009. He joined PNC as Vice Chairman and Chief Partners, LLC, (private equity) (1995) Financial Officer in September 2002. Since August 2005, he • Robert N. Clay, 62, President and Chief Executive has had oversight responsibilities for the Corporation’s Officer of Clay Holding Company (investments) Corporate & Institutional Banking business. He also oversees (1987) PNC’s asset and liability management and equity management • George A. Davidson, Jr., 70, Retired Chairman of activities. Dominion Resources, Inc. (public utility holding company) (1988) Timothy G. Shack was appointed Vice Chairman in February • Kay Coles James, 59, President and Founder of The 2009. He was Executive Vice President from July 1991 to Gloucester Institute (non-profit) (2006) February 2009, and also served as Chief Information Officer • Richard B. Kelson, 62, Operating Advisor, Pegasus from April 1998 to May 2008. Capital Advisors, L.P., (private equity) (2002) • Bruce C. Lindsay, 67, Chairman and Managing Thomas K. Whitford was appointed Vice Chairman in Member of 2117 Associates, LLC (advisory February 2009. He was appointed Chief Administrative company) (1995) Officer in May 2007. From April 2002 through May 2007, he • Anthony A. Massaro, 64, Retired Chairman and served as Chief Risk Officer. Chief Executive Officer of Lincoln Electric Holdings, Inc. (manufacturer of welding and cutting Joan L. Gulley was Chief Executive Officer for PNC’s wealth products) (2002) management business from 2002 to 2006. In 2006 she was • Jane G. Pepper, 63, President of Pennsylvania appointed Executive Vice President of PNC Bank, N.A. and Horticultural Society (non-profit) (1997) was responsible for product and segment management, as well • James E. Rohr, 60, Chairman and Chief Executive as advertising and brand management for PNC. In April 2008 Officer of PNC (1990) she was appointed Senior Vice President and Chief Human • Donald J. Shepard, 62, Retired Chairman of the Resources Officer for PNC and in February 2009 she was Executive Board and Chief Executive Officer, appointed Executive Vice President of PNC. AEGON N.V. (insurance) (2007)

18 • Lorene K. Steffes, 63, Independent Business Advisor “Supervision and Regulation” in Item 1 of this Report, (technology and technical services) (2000) “Funding and Capital Sources” in the Consolidated Balance • Dennis F. Strigl, 62, President and Chief Operating Sheet Review section, “Liquidity Risk Management” in the Officer of Verizon Communications Inc. Risk Management section, and “Perpetual Trust Securities”, (telecommunications) (2001) “PNC Capital Trust E Trust Preferred Securities” and • Stephen G. Thieke, 62, Retired Chairman, Risk “Acquired Entity Trust Preferred Securities” in the Management Committee of JP Morgan Incorporated Off-Balance Sheet Arrangements and VIEs section of Item 7 (financial and investment banking services) (2002) of this Report, and Note 23 Regulatory Matters in the Notes • Thomas J. Usher, 66, Chairman of Marathon Oil To Consolidated Financial Statements in Item 8 of this Report, Corporation (oil and gas industry) (1992) which we include here by reference. • George H. Walls, Jr., 66, former Chief Deputy Auditor of the State of North Carolina (2006) We include here by reference additional information relating • Helge H. Wehmeier, 66, Retired President and Chief to PNC common stock under the caption “Common Stock Executive Officer of Bayer Corporation (healthcare, Prices/Dividends Declared” in the Statistical Information crop protection, and chemicals) (1992) (Unaudited) section of Item 8 of this Report. PART II We include here by reference the information regarding our ITEM 5–MARKET FOR REGISTRANT’S COMMON compensation plans under which PNC equity securities are authorized for issuance as of December 31, 2008 in the table EQUITY, RELATED STOCKHOLDER MATTERS AND (with introductory paragraph and notes) that appears under ISSUER PURCHASES OF EQUITY SECURITIES Item 12 of this Report. (a) Our common stock is listed on the New York Stock Exchange and is traded under the symbol “PNC.” At the close Our registrar, stock transfer agent, and dividend disbursing of business on February 17, 2009, there were 79,036 common agent is: shareholders of record. Computershare Investor Services, LLC 250 Royall Street Holders of PNC common stock are entitled to receive Canton, MA 02021 dividends when declared by the Board of Directors out of 800-982-7652 funds legally available for this purpose. Our Board of Directors may not pay or set apart dividends on the common We include here by reference the information that appears stock until dividends for all past dividend periods on any under the caption “Common Stock Performance Graph” at the series of outstanding preferred stock have been paid or end of this Item 5. declared and set apart for payment. The Board presently intends to continue the policy of paying quarterly cash (b) Not applicable. dividends. However, on March 1, 2009, the Board decided to reduce PNC’s quarterly common stock dividend from $0.66 to (c) Details of our repurchases of PNC common stock during $0.10 per share. The next dividend is expected to be declared the fourth quarter of 2008 are included in the following table: in early April 2009. The amount of any future dividends will depend on economic and market conditions, our financial In thousands, except per share data Maximum condition and operating results, and other factors, including Total shares number of purchased as shares that contractual restrictions and applicable government regulations Average part of may yet be and policies (such as those relating to the ability of bank and Total shares price publicly purchased purchased paid per announced under the non-bank subsidiaries to pay dividends to the parent 2008 period (a) (b) share programs (c) programs (c) company). October 1 – October 31 247 $67.37 24,710 The Risk Factors section of Item 1A of this Report and Note November 1 – 19 Shareholders’ Equity in the Notes To Consolidated November 30 186 $62.13 24,710 December 1 – Financial Statements in Item 8 of this Report, which we December 31 143 $49.13 24,710 include here by reference, describe restrictions on dividends Total 576 $61.16 and common share repurchases associated with our (a) Under the US Treasury’s TARP Capital Purchase Program, there are restrictions on December 31, 2008 issuance of preferred stock to the US dividends and common share repurchases associated with the preferred stock that we Department of the Treasury under the TARP Capital Purchase issued to the US Treasury under that program on December 31, 2008. As is typical with cumulative preferred stocks, dividend payments for this preferred must be Program. In addition, the Federal Reserve has the power to current before dividends can be paid on junior shares, including our common stock, prohibit us from paying dividends without its approval. For or junior shares can be repurchased or redeemed. Also, the US Treasury’s consent further information concerning dividend restrictions and will be required for any increase in common dividends per share above the most recent level prior to October 14, 2008 until the third anniversary of the preferred restrictions on loans, dividends or advances from bank issuance unless all of that preferred has been redeemed or is no longer held by the subsidiaries to the parent company, you may review US Treasury. Further, during that same period, the US Treasury’s consent will be

19 required, unless the preferred stock is no longer held by the US Treasury, for any The Peer Group for the preceding chart and table consists of share repurchases with limited exceptions, most significantly purchases of common shares in connection with any benefit plan in the ordinary course of business the following companies: BB&T Corporation; Comerica Inc.; consistent with past practice. Fifth Third Bancorp; KeyCorp; National City Corporation; (b) Reflects PNC common stock purchased in connection with our various employee The PNC Financial Services Group, Inc.; SunTrust Banks, benefit plans. No shares were purchased under the program referred to in note (c) to this table during the fourth quarter of 2008. Inc.; U.S. Bancorp.; Wachovia Corporation; Regions Financial (c) Our current stock repurchase program allows us to purchase up to 25 million shares Corporation; and Wells Fargo & Co. This Peer Group was on the open market or in privately negotiated transactions. This program was approved by the Board’s Personnel and Compensation authorized on October 4, 2007 and will remain in effect until fully utilized or until modified, superseded or terminated. Committee (the “Committee”) for 2008. As of December 31, 2008, Wells Fargo & Co. acquired Wachovia Corporation and Common Stock Performance Graph PNC acquired National City Corporation. Typically, the This graph shows the cumulative total shareholder return (i.e., Committee reviews the makeup of the peer group annually. price change plus reinvestment of dividends) on our common Due to the many changes in the financial industry generally, stock during the five-year period ended December 31, 2008, PNC’s substantially increased size and scope at the beginning as compared with: (1) a selected peer group of our of 2009, and a significant number of mergers and other competitors, called the “Peer Group;” (2) an overall stock changes with respect to PNC’s 2008 peers and other industry market index, the S&P 500 Index; and (3) a published industry leaders, the Committee has changed the peer group for 2009 to index, the S&P 500 Banks. The yearly points marked on the consist of the following companies: BB&T Corporation; Bank horizontal axis of the graph correspond to December 31 of of America Corporation; Capital One Financial, Inc.; that year. The stock performance graph assumes that $100 was Comerica Inc.; Fifth Third Bancorp; JPMorgan Chase; invested on January 1, 2004 for the five-year period and that KeyCorp; M&T Bank; Regions Financial Corporation; any dividends were reinvested. The table below the graph SunTrust Banks, Inc.; U.S. Bancorp; and Wells Fargo & Co. shows the resultant compound annual growth rate for the performance period. Each yearly point for the Peer Group is determined by calculating the cumulative total shareholder return for each company in the Peer Group from December 31, 2003 to Comparison of Cumulative Five Year Total Return 200 December 31 of that year (End of Month Dividend Reinvestment Assumed) and then using the median of these returns as the yearly plot point.

150 In accordance with the rules of the SEC, this section, captioned “Common Stock Performance Graph,” shall not be 100 incorporated by reference into any of our future filings made Dollars under the Securities Exchange Act of 1934 or the Securities Act of 1933. The Common Stock Performance Graph, 50 including its accompanying table and footnotes, is not deemed to be soliciting material or to be filed under the Exchange Act PNC S&P 500 Index S&P 500 Banks Peer Group 0 or the Securities Act. Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08

Assumes $100 investment at Close of 5-Year Market on December 31, 2002 Compound Base Total Return = Price change plus Growth Period reinvestment of dividends Rate Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 PNC $100 108.92 121.63 150.33 137.87 107.29 1.42% S&P 500 Index $100 110.88 116.32 134.69 142.09 89.52 (2.19)% S&P 500 Banks $100 114.44 112.80 130.99 91.98 48.29 (13.55)% Peer Group $100 112.86 113.85 133.00 94.06 45.03 (14.75)%

20 ITEM 6–SELECTED FINANCIAL DATA

Year ended December 31 Dollars in millions, except per share data 2008 (a) 2007 2006 (b) 2005 2004

SUMMARY OF OPERATIONS Interest income $ 6,313 $ 6,166 $ 4,612 $ 3,734 $ 2,752 Interest expense 2,490 3,251 2,367 1,580 783 Net interest income 3,823 2,915 2,245 2,154 1,969 Noninterest income 3,367 3,790 6,327 4,173 3,572 Total revenue 7,190 6,705 8,572 6,327 5,541 Provision for credit losses (c) 1,517 315 124 21 52 Noninterest expense 4,430 4,296 4,443 4,306 3,712 Income before minority interests and income taxes 1,243 2,094 4,005 2,000 1,777 Minority interest in income of BlackRock 47 71 42 Income taxes 361 627 1,363 604 538 Net income $ 882 $ 1,467 $ 2,595 $ 1,325 $ 1,197

PER COMMON SHARE Basic earnings $ 2.50 $ 4.43 $ 8.89 $ 4.63 $ 4.25 Diluted earnings $ 2.46 $ 4.35 $ 8.73 $ 4.55 $ 4.21 Book value (d) $ 39.44 $ 43.60 $ 36.80 $ 29.21 $ 26.41 Cash dividends declared $ 2.61 $ 2.44 $ 2.15 $ 2.00 $ 2.00

SELECTED RATIOS Net interest margin (e) 3.37% 3.00% 2.92% 3.00% 3.22% Noninterest income to total revenue 47 57 74 66 64 Efficiency 62 64 52 68 67 Return on Average tangible common shareholders’ equity 17.70 22.65 48.74 30.64 29.90 Average common shareholders’ equity 6.28 10.53 27.97 16.58 16.82 Average assets .62 1.19 2.73 1.50 1.59 Loans to deposits (d) 91 83 76 81 82 Dividend payout 104.6 55.0 24.4 43.4 47.2 Tier 1 risk-based capital (d) 9.7 6.8 10.4 8.3 9.0 Common shareholders’ equity to total assets (d) 6.0 10.7 10.6 9.3 9.4 Average common shareholders’ equity to average assets 9.6 11.3 9.8 9.0 9.4 (a) The 2008 Consolidated Income Statement does not include operating results of National City. (b) The 2007 Versus 2006 Consolidated Income Statement Review section of Item 7 of this Report describes certain items impacting 2006 results. (c) Amount for 2008 included $504 million conforming provision for credit losses related to our National City acquisition. (d) At December 31. (e) Calculated as annualized taxable-equivalent net interest income divided by average earning assets. The interest income earned on certain earning assets is completely or partially exempt from federal income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more meaningful comparisons of margins for all earning assets, we use net interest income on a taxable-equivalent basis in calculating net interest margin by increasing the interest income earned on tax-exempt assets to make it fully equivalent to interest income earned on taxable investments. This adjustment is not permitted under GAAP in the Consolidated Income Statement. The taxable-equivalent adjustments to net interest income for the years 2008, 2007, 2006, 2005 and 2004 were $36 million, $27 million, $25 million, $33 million and $20 million, respectively.

Certain prior-period amounts have been reclassified to conform with the current period presentation, which we believe is more meaningful to readers of our consolidated financial statements. See Note 2 Acquisitions and Divestitures in the Notes To Consolidated Financial Statements in Item 8 of this Report for information on significant recent business acquisitions and divestitures, including our December 31, 2008 acquisition of National City Corporation. For information regarding certain business risks, see Item 1A Risk Factors and the Risk Management section of Item 7 of this Report. Also, see our Cautionary Statement Regarding Forward-Looking Information included in Item 7 of this Report for certain risks and uncertainties that could cause actual results to differ materially from those anticipated in forward-looking statements or from historical performance.

21 December 31 Dollars in millions, except as noted 2008 (a) 2007 2006 2005 2004

BALANCE SHEET HIGHLIGHTS Assets $291,081 $138,920 $101,820 $91,954 $79,723 Loans 175,489 68,319 50,105 49,101 43,495 Allowance for loan and lease losses 3,917 830 560 596 607 Investment securities 43,473 30,225 23,191 20,710 16,761 Loans held for sale 4,366 3,927 2,366 2,449 1,670 Goodwill 8,868 8,405 3,402 3,619 3,001 Equity investments (b) 8,554 6,045 5,330 1,323 1,058 Deposits 192,865 82,696 66,301 60,275 53,269 Borrowed funds (c) 52,240 30,931 15,028 16,897 11,964 Shareholders’ equity 25,422 14,854 10,788 8,563 7,473 Common shareholders’ equity 17,490 14,847 10,781 8,555 7,465

ASSETS ADMINISTERED (in billions) Managed (d) $ 110 $ 74 $ 55 $ 495 $ 383 Nondiscretionary 125 112 85 83 93

FUND ASSETS SERVICED (in billions) Accounting/administration net assets $ 839 $ 990 $ 837 $ 835 $ 721 Custody assets 379 500 427 476 451

SELECTED STATISTICS Period-end employees 59,595 28,320 23,783 25,348 24,218 Branches 2,589 1,109 852 839 776 ATMs 6,232 3,900 3,581 3,721 3,581 Residential mortgage servicing portfolio (in billions) $ 187 Commercial mortgage servicing portfolio (in billions) $ 286 $ 243 $ 200 $ 136 $ 98 (a) Information at December 31, 2008 includes the impact of National City Corporation, which we acquired as of that date. (b) The balances at December 31, 2008, 2007 and 2006 include our investment in BlackRock. BlackRock was a consolidated entity at December 31, 2005 and 2004. (c) Includes long-term borrowings of $35 billion, $12.6 billion, $6.6 billion, $6.8 billion, and $5.7 billion for 2008, 2007, 2006, 2005, and 2004, respectively. Borrowings which mature more than one year after December 31, 2008 are considered to be long-term. (d) Assets under management at December 31, 2008, 2007 and 2006 do not include BlackRock’s assets under management as we deconsolidated BlackRock effective September 29, 2006.

22 ITEM 7–MANAGEMENT’S DISCUSSION AND appropriate and targeted acquisitions and, in certain ANALYSIS OF FINANCIAL CONDITION AND businesses, by expanding into new geographical markets. RESULTS OF OPERATIONS We are focused on our strategies for quality growth. We are committed to returning to a moderate risk profile EXECUTIVE SUMMARY characterized by disciplined credit management and limited THE PNC FINANCIAL SERVICES GROUP,INC. exposure to earnings volatility resulting from interest rate PNC is one of the largest diversified financial services fluctuations and the shape of the interest rate yield curve. Our companies in the United States based on assets and is actions have created a well-positioned and strong balance headquartered in Pittsburgh, Pennsylvania. sheet, ample liquidity and investment flexibility to adjust, where appropriate and permissible, to changing interest rates As described further below, on December 31, 2008, PNC and market conditions. acquired National City Corporation (“National City”), nearly doubling our assets to a total of $291 billion and expanding We continue to be disciplined in investing capital in our our total consolidated deposits to $193 billion. Our businesses while returning a portion to shareholders through Consolidated Balance Sheet includes the impact of National dividends and share repurchases when appropriate and City as of December 31, 2008. permissible. See the Funding and Capital Sources section of the Consolidated Balance Sheet Review section and the Prior to the acquisition, PNC had businesses engaged in retail Liquidity Risk Management section of this Financial Review banking, corporate and institutional banking, asset regarding certain restrictions on dividends and common share management, and global investment servicing, providing repurchases resulting from PNC’s participation in the US many of its products and services nationally and others in Treasury’s Troubled Asset Relief Program (“TARP”) Capital PNC’s primary geographic markets located in Pennsylvania, Purchase Program and dividend capacity. New Jersey, Washington, DC, Maryland, Virginia, Ohio, Kentucky and Delaware. PNC also provided certain On March 1, 2009, the Board decided to reduce PNC’s investment servicing internationally. quarterly common stock dividend from $0.66 to $0.10 per share. The next dividend is expected to be declared in early National City’s primary businesses prior to its acquisition by April 2009. Our Board recognizes the importance of the PNC included commercial and retail banking, mortgage dividend to our shareholders. While our overall capital and financing and servicing, consumer finance and asset liquidity positions are strong, extreme economic and market management, operating through an extensive network in Ohio, deterioration and the changing regulatory environment drove Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, this difficult but prudent decision. This proactive measure will Pennsylvania and Wisconsin. National City also conducted help us build capital, further strengthen our balance sheet and selected consumer lending businesses and other financial continue to serve our customers. services on a nationwide basis. ACQUISITION OF NATIONAL CITY CORPORATION On December 31, 2008, we acquired National City for PNC is now in the process of integrating the business and approximately $6.1 billion. The total consideration included operations of National City with those of PNC. approximately $5.6 billion of PNC common stock, $150 million of preferred stock, and cash paid to warrant holders by KEY STRATEGIC GOALS National City. We manage our company for the long term and are focused on returning to a moderate risk profile while maintaining strong We completed the acquisition primarily by issuing capital and liquidity positions, investing in our markets and approximately 95 million shares of PNC common stock. In products, and embracing our corporate responsibility to the accordance with purchase accounting methodologies, National communities where we do business. City Bank’s balance sheet was adjusted to fair value at which time the bank was under-capitalized from a regulatory Our strategy to enhance shareholder value centers on driving perspective. However, PNC’s Consolidated Balance Sheet positive operating leverage by achieving growth in revenue remained well-capitalized and liquid. from our balance sheet and diverse business mix that exceeds growth in expenses controlled through disciplined cost Following the closing, PNC received $7.6 billion from the US management. In each of our current business segments, the Department of the Treasury under the Emergency Economic primary drivers of revenue growth are the acquisition, Stabilization Act of 2008 in exchange for the issuance of expansion and retention of customer relationships. We strive preferred stock and a warrant. These proceeds were used to to expand our customer base by offering convenient banking enhance National City Bank’s regulatory capital position to options and leading technology solutions, providing a broad well-capitalized in order to continue serving the credit and range of fee-based and credit products and services, focusing deposit needs of existing and new customers. On a on customer service, and through a significantly enhanced consolidated basis, these proceeds resulted in further branding initiative. We may also grow revenue through improvement to our capital and liquidity positions.

23 National City, based in Cleveland, Ohio, was one of the the terms of the TARP Capital Purchase Program. Funds from nation’s largest commercial banking organizations based on this sale count as Tier 1 capital and the warrant qualifies as assets. We expect to incur total merger and integration costs of tangible common equity. approximately $1.2 billion in connection with the acquisition of National City, including $575 million recognized in the Holders of this preferred stock are entitled to a cumulative fourth quarter of 2008. The transaction is expected to result in cash dividend at the annual rate per share of 5% of the the reduction of approximately $1.2 billion of combined liquidation preference per year for the first five years after the company annualized noninterest expense through the closing date. Afterward, the annual dividend rate will increase, elimination of operational and administrative redundancies. to 9% per year. PNC’s intent is to redeem this preferred stock prior to the escalation of the dividend rate. Other than the merger and integration costs discussed above, our acquisition of National City did not impact our 2008 Note 19 Shareholders’ Equity included in our Notes to Consolidated Income Statement, nor did it impact our 2008 Consolidated Financial Statements within Item 8 of this Average Consolidated Balance Sheet. Note 2 Acquisitions and Report includes additional information regarding the preferred Divestitures included in our Notes To Consolidated Financial stock and the related warrant that we issued under this Statements within Item 8 of this Report and our Current program. Reports on Form 8-K filed October 24, 2008, October 30, 2008, December 23, 2008, and January 2, 2009 provide FDIC TEMPORARY LIQUIDITY GUARANTEE PROGRAM additional information regarding our acquisition of National The FDIC’s TLGP is designed to strengthen confidence and City. encourage liquidity in the banking system by: • Guaranteeing newly issued senior unsecured debt of eligible institutions, including FDIC-insured banks RECENT MARKET AND INDUSTRY DEVELOPMENTS and thrifts, as well as certain holding companies Starting in the middle of 2007 and with a heightened level of (“TLGP-Debt Guarantee Program”), and activity during the second half of 2008 and into early 2009, • Providing full deposit insurance coverage for there has been unprecedented turmoil, volatility and illiquidity non-interest bearing transaction accounts in FDIC- in worldwide financial markets, accompanied by uncertain insured institutions, regardless of the dollar amount prospects for the overall national economy, which is currently (“TLGP -Transaction Account Guarantee Program”). in the midst of a severe recession. In addition, there have been dramatic changes in the competitive landscape of the financial In December 2008, PNC Funding Corp issued at the holding services industry during this time. company level fixed and floating rate senior notes totaling Recent efforts by the Federal government, including the US $2.9 billion under the FDIC’s TLGP-Debt Guarantee Program Department of the Treasury, the Federal Reserve, the FDIC, as more fully described within the Liquidity Risk and the Securities and Exchange Commission, to stabilize and Management section of this Item 7. Each of these series of restore confidence in the financial services industry have senior notes is guaranteed by the FDIC and is backed by the impacted and will likely continue to impact PNC and our full faith and credit of the United States through June 30, stakeholders. These efforts, which will continue to evolve, 2012. include the Emergency Economic Stabilization Act of 2008, As of October 14, 2008, PNC Bank, N.A. and National City the American Recovery and Reinvestment Act of 2009, and Bank have been participating in the TLGP-Transaction other legislative, administrative and regulatory initiatives, Account Guarantee Program. Under this program, through including the US Treasury’s TARP and TARP Capital December 31, 2009, all non-interest bearing transaction Purchase Program, the FDIC’s Temporary Liquidity accounts are fully guaranteed by the FDIC for the entire Guarantee Program (“TLGP”) and the Federal Reserve’s amount in the account. Coverage under this program is in Commercial Paper Funding Facility (“CPFF”). addition to, and separate from, the coverage available under Beginning in the fourth quarter of 2008, PNC participated in the FDIC’s general deposit insurance rules. several of these programs as further described below: COMMERCIAL PAPER FUNDING FACILITY TARP CAPITAL PURCHASE PROGRAM The Federal Reserve established the CPFF to provide a The TARP Capital Purchase Program encourages US financial liquidity backstop to US issuers of commercial paper and institutions to build capital through the sale to the US thereby improve liquidity in short-term funding markets and Treasury of senior preferred shares of stock to increase the thus increase the availability of credit for businesses and flow of financing to US businesses and consumers and to households. Effective October 28, 2008, Market Street support the US economy. Funding LLC (“Market Street”) was approved to participate in the Federal Reserve’s CPFF. The CPFF commitment to On December 31, 2008, PNC issued to the US Treasury $7.6 purchase up to $5.4 billion of three-month Market Street billion of preferred stock together with a related warrant to commercial paper expires on October 30, 2009. As of purchase shares of common stock of PNC, in accordance with December 31, 2008, Market Street’s participation in this

24 program totaled $445 million. These trades matured at the end • Managing the distressed assets portfolio, of January 2009 and were replaced with commercial paper • Maintaining solid overall asset quality, sold to investors. • Continuing to maintain our solid deposit base, • Prudent risk and capital management leading to a **** return to our desired moderate risk profile, and • Actions we take within the capital and other financial It is also possible that the US Congress and federal banking markets. agencies, as part of their efforts to provide economic stimulus and financial market stability, to enhance the liquidity and See also Item 1A Risk Factors and the Cautionary Statement solvency of financial institutions and markets, and to enhance Regarding Forward-Looking Information section of Item 7 of the regulation of financial institutions and markets, will this Report. announce additional legislation, regulations or programs. These additional actions may take the form of changes in or OTHER 2008 ACQUISITION AND DIVESTITURE ACTIVITY additions to the statutes or regulations related to existing On April 4, 2008, we acquired Lancaster, Pennsylvania-based programs, including those described above. It is not possible Sterling Financial Corporation (“Sterling”) for approximately at this time to predict the ultimate impact of these actions on 4.6 million shares of PNC common stock and $224 million in PNC’s business plans and strategies. cash. Sterling was a banking and financial services company with approximately $3.2 billion in assets, $2.7 billion in KEY FACTORS AFFECTING FINANCIAL PERFORMANCE deposits, and 65 branches in south-central Pennsylvania, Our financial performance is substantially affected by several northern Maryland and northern Delaware. The Sterling external factors outside of our control including the following, technology systems and bank charter conversions were some of which may be affected by legislative, regulatory and completed during the third quarter of 2008 and we realized the administrative initiatives of the Federal government outlined anticipated cost savings related to these activities. above: • General economic conditions, including the length On March 31, 2008, we sold J.J.B. Hilliard, W.L. Lyons, LLC and severity of the current recession, (“Hilliard Lyons”), a Louisville, Kentucky-based wholly- • The level of, and direction, timing and magnitude of owned subsidiary of PNC and a full-service brokerage and movement in interest rates, and the shape of the financial services provider, to Houchens Industries, Inc. We interest rate yield curve, recognized an after-tax gain of $23 million in the first quarter • The functioning and other performance of, and of 2008 in connection with this divestiture. Business segment availability of liquidity in, the capital and other information for the periods presented in this Item 7 reflects the financial markets, reclassification of results for Hilliard Lyons, including the • Loan demand, utilization of credit commitments and gain on the sale of this business, from the Retail Banking standby letters of credit, and asset quality, business segment to “Other.” • Customer demand for other products and services, Summary Financial Results • Changes in the competitive landscape and in Year ended December 31 counterparty creditworthiness and performance as the In millions, except financial services industry restructures in the current per share data 2008 2007 environment, Net income $ 882 $1,467 • Movement of customer deposits from lower to higher Diluted earnings per share $2.46 $ 4.35 rate accounts or to investment alternatives, and Return on • The impact of market credit spreads on asset Average common shareholders’ equity 6.28% 10.53% valuations. Average assets .62% 1.19%

In addition, our success will depend, among other things, Our earnings and related per share amounts for 2008 do not upon: include the impact of National City, which we acquired • Further success in the acquisition, growth and effective December 31, 2008, other than a conforming retention of customers, adjustment to our provision for credit losses of $504 million • Progress toward integrating the National City and other integration costs of $71 million, both of which were acquisition, recognized in the fourth quarter. • Continued development of the markets related to our recent acquisitions, including full deployment of our Our performance in 2008 included the following: product offerings, • At December 31, 2008 we had total assets of $291 • Revenue growth, billion, including loans of $175 billion, and total • A sustained focus on expense management, including deposits of $193 billion, reflecting the acquisition of achieving our cost savings targets associated with our National City. National City integration, and creating positive • We significantly strengthened capital. The Tier 1 operating leverage, risk-based capital ratio was 9.7% at December 31,

25 2008 compared with 6.8% at December 31, 2007. We government agency residential mortgage-backed issued $7.6 billion of preferred stock and a common securities representing 53% of the portfolio. Of the stock warrant to the US Department of the Treasury remaining portfolio, approximately 80% of the under the TARP Capital Purchase Program on securities had AAA-equivalent ratings. December 31, 2008, which qualified as Tier 1 capital. • PNC created positive operating leverage for the year • Our tangible common equity ratio was 2.9% at of 4%, or $351 million. Total revenue for 2008 grew December 31, 2008. We expect our tangible common 7% compared with 2007, driven by growth in net equity ratio to be less sensitive to the impact of interest income, and exceeded year-over-year widening credit spreads on accumulated other noninterest expense growth of 3%. comprehensive loss going forward primarily due to • With the acquisition of National City, our retail the composition of the securities available for sale banks now serve over 6 million consumer and portfolio acquired from National City and a business customers. Comprehensive two-year substantially higher level of tangible common equity integration plans are being implemented with a goal in the combined company. of eliminating $1.2 billion of annualized expenses, • We maintained a strong liquidity position and including the reduction of approximately 5,800 continued to generate deposits. The loan to deposit positions across the combined 59,595 employee base ratio was 91% at December 31, 2008, reflecting the by 2011. The first regional branch conversion is acquisition of National City. Average deposits for planned for the second half of 2009. 2008 increased 10% compared with 2007. • Credit quality migration reflected a rapidly Our Consolidated Income Statement Review section of this weakening economy, but remained manageable as Item 7 describes in greater detail the various items that PNC was able to maintain a strong capital position impacted our results for 2008 and 2007. and generate positive operating leverage. The allowance for loan and lease losses increased to $3.9 BALANCE SHEET HIGHLIGHTS billion at December 31, 2008 from $830 million at Total assets were $291.1 billion at December 31, 2008 December 31, 2007 primarily as a result of the compared with $138.9 billion at December 31, 2007. Total National City acquisition and related conforming assets at December 31, 2008 included $133.7 billion related to credit adjustment. The ratio of allowance for loan and National City. Our acquisition of National City did not impact lease losses to total loans was strengthened to 2.23% our 2008 Average Consolidated Balance Sheet. at December 31, 2008 compared with 1.21% at December 31, 2007. This ratio excluding the impact Total average assets were $142.0 billion for 2008 compared of the National City acquisition was 1.77% at with $123.4 billion for 2007. This increase reflected a $16.5 December 31, 2008. We provide a reconciliation of billion increase in average interest-earning assets and a $2.1 this ratio excluding the National City impact to the billion increase in average noninterest-earning assets. An GAAP-basis ratio in the Statistical Information increase of $10.2 billion in loans and a $6.2 billion increase in (Unaudited) section in Item 8 of this Report. investment securities were the primary factors for the increase • Average loans for 2008 increased 16% over 2007. in average interest-earning assets. • We are committed to supporting the objectives of the Emergency Economic Stabilization Act of 2008. To The increase in average noninterest-earning assets for 2008 that end, we are continuing to make credit available reflected an increase in average goodwill of $1.6 billion to qualified borrowers including enhanced calling primarily related to the acquisition of Sterling on April 4, efforts on small businesses and corporations, 2008, Yardville National Bancorp (“Yardville”) on promotions offered with special financing rates and October 26, 2007 and Mercantile Bankshares Corporation responding to increased loan demand for first (“Mercantile”) on March 2, 2007. mortgages. We have reaffirmed and renewed loans and lines of credit, focused on early identification of The impact of the Sterling, Yardville and Mercantile loan modification candidates and are working closely acquisitions is also reflected in our year-over-year increases in where appropriate with customers who are average total loans, average securities available for sale and experiencing financial hardship to set up new average total deposits as described further below. repayment schedules, loan modifications and forbearance programs. We plan to enhance these Average total loans were $72.7 billion for 2008 and $62.5 efforts over time to improve the effectiveness of our billion for 2007. The increase in average total loans included broad-reaching initiatives. growth in commercial loans of $5.5 billion, consumer loans of • Investment securities were $43.5 billion at $2.8 billion, commercial real estate loans of $1.7 billion and December 31, 2008, or 15% of total assets. The residential mortgage loans of $.5 billion. Loans represented portfolio was primarily comprised of well- 64% of average interest-earning assets for both 2008 and diversified, high quality securities with US 2007.

26 Average investment securities totaled $32.7 billion for 2008 Corporate & Institutional Banking and $26.5 billion for 2007. Average residential and Corporate & Institutional Banking earned $225 million in commercial mortgage-backed securities increased $4.5 billion 2008 compared with $432 million in 2007. The 48% decline on a combined basis in the comparison. Average investment in earnings over 2007 was primarily driven by an increase in securities for 2008 included $.4 billion of held to maturity the provision for credit losses and by higher valuation losses securities that we transferred from available for sale status on commercial mortgage loans held for sale, net of hedges. during the fourth quarter of 2008. Investment securities comprised 29% of average interest-earning assets for 2008 BlackRock and 27% for 2007. Our BlackRock business segment earned $207 million in 2008 and $253 million in 2007. These results reflect our Average total deposits were $84.5 billion for 2008, an increase approximately 33% share of BlackRock’s reported GAAP of $7.7 billion over 2007. Average deposits grew from the earnings during both periods and the additional income taxes prior year period primarily as a result of increases in money on these earnings incurred by PNC. market balances and other time deposits. Global Investment Servicing Global Investment Servicing earned $122 million for 2008 Average total deposits represented 60% of average total assets and $128 million for 2007. Results for 2008 were negatively for 2008 and 62% for 2007. Average transaction deposits were impacted by declines in asset values and fund redemptions as $55.7 billion for 2008 compared with $50.7 billion for 2007. a result of severe deterioration of the financial markets during the fourth quarter. Average borrowed funds were $31.3 billion for 2008 and $23.0 billion for 2007. Increases of $7.1 billion in Federal Other Home Loan Bank borrowings and $1.4 billion in other “Other” incurred a loss of $101 million in 2008 and a loss of borrowed funds drove the increase compared with 2007. $222 million in 2007.

Shareholders’ equity totaled $25.4 billion at December 31, “Other” for 2008 included the impact of integration costs, 2008 compared with $14.9 billion at December 31, 2007 and including the National City conforming provision for credit reflected the issuance of securities under the TARP Capital losses, totaling $422 million after taxes, of which $380 million Purchase Program and the impact of National City. See the after taxes were recognized in the fourth quarter of 2008. In Consolidated Balance Sheet Review section of this Item 7 for addition, net securities losses in 2008 totaled $134 million additional information. after taxes. These factors were partially offset by strong growth in net interest income related to asset and liability management activities in 2008, and the after-tax impact of the LINE OF BUSINESS HIGHLIGHTS We refer you to Item 1 of this Report under the captions following: After-tax gains totaling $160 million from PNC’s Business Overview and Review of Lines of Business for an • remaining BlackRock long-term incentive plan overview of our business segments and to the Business programs (“LTIP”) shares obligation, Segments Review section of this Item 7 for a Results Of • The $23 million after-tax gain on the sale of Hilliard Businesses – Summary table and further analysis of business Lyons in the first quarter, segment results for 2008 and 2007, including presentation • The $40 million after-tax third quarter reversal of a differences from Note 27 Segment Reporting in the Notes To legal contingency reserve established in connection Consolidated Financial Statements in Item 8 of this Report. with an acquisition due to a settlement, and • The $30 million after-tax partial reversal of the Visa Total business segment earnings were $983 million for 2008 indemnification liability. and $1.7 billion for 2007. We provide a reconciliation of total business segment earnings to total PNC consolidated net “Other” for 2007 included the after-tax impact of the income as reported on a GAAP basis in Note 27. following: • Integration costs totaling $99 million after taxes, Retail Banking • A net after-tax charge of $83 million representing the Retail Banking’s earnings were $429 million for 2008 net mark-to-market adjustment on our remaining compared with $876 million for 2007. The decline in earnings BlackRock LTIP shares obligation partially offset by over the prior year was primarily driven by increases in the the gain recognized in connection with PNC’s first provision for credit losses and noninterest expense. The 2008 quarter transfer of BlackRock shares to satisfy a revenue growth was negatively impacted by a lower interest portion of our BlackRock LTIP shares obligation, credit attributed to deposits in the declining rate environment and and was therefore not reflective of the solid growth in • A $53 million after-tax charge for an indemnification customers and deposits. obligation related to certain Visa litigation.

27 ONSOLIDATED NCOME alignment related to our National City acquisition. We also C I currently expect our 2009 net interest margin to improve on a STATEMENT REVIEW year-over-year basis.

Our Consolidated Income Statement is presented in Item 8 of NONINTEREST INCOME this Report. Net income for 2008 was $882 million and for Summary 2007 was $1.467 billion. Total revenue for 2008 increased 7% Noninterest income was $3.367 billion for 2008 and $3.790 compared with 2007. We created positive operating leverage billion for 2007. in the year-to-date comparison as total noninterest expense increased 3% in the comparison. Noninterest income for 2008 included the following: • Gains of $246 million related to the mark-to-market NET INTEREST INCOME AND NET INTEREST MARGIN adjustment on our BlackRock LTIP shares obligation, Year ended December 31 Dollars in millions 2008 2007 • Losses related to our commercial mortgage loans Net interest income $3,823 $2,915 held for sale of $197 million, net of hedges, • Impairment and other losses related to alternative Net interest margin 3.37% 3.00% investments of $179 million, • Income from Hilliard Lyons totaling $164 million, Changes in net interest income and margin result from the including the first quarter gain of $114 million from interaction of the volume and composition of interest-earning the sale of this business, assets and related yields, interest-bearing liabilities and related • Net securities losses of $206 million, rates paid, and noninterest-bearing sources of funding. See • A first quarter gain of $95 million related to the Statistical Information – Analysis Of Year-To-Year Changes redemption of a portion of our Visa Class B common In Net Interest (Unaudited) Income And Average shares related to Visa’s March 2008 initial public Consolidated Balance Sheet and Net Interest Analysis in offering, Item 8 of this Report for additional information. • A third quarter $61 million reversal of a legal contingency reserve established in connection with The 31% increase in net interest income for 2008 compared an acquisition due to a settlement, with 2007 was favorably impacted by the $16.5 billion, or • Trading losses of $55 million, 17%, increase in average interest-earning assets and a • A $35 million impairment charge on commercial decrease in funding costs. The 2008 net interest margin was mortgage servicing rights, and positively affected by declining rates paid on deposits and • Equity management losses of $24 million. borrowings compared with the prior year. The reasons driving the higher interest-earning assets in these comparisons are Noninterest income for 2007 included the following: further discussed in the Balance Sheet Highlights portion of • The impact of $82 million gain recognized in the Executive Summary section of this Item 7. connection with our transfer of BlackRock shares to satisfy a portion of PNC’s LTIP obligation and a The net interest margin was 3.37% for 2008 and 3.00% for $209 million net loss on our LTIP shares obligation, 2007. The following factors impacted the comparison: • Income from Hilliard Lyons totaling $227 million, • A decrease in the rate paid on interest-bearing • Trading income of $104 million, liabilities of 140 basis points. The rate paid on • Equity management gains of $102 million, and interest-bearing deposits, the single largest • Gains related to our commercial mortgage loans held component, decreased 123 basis points. for sale of $3 million, net of hedges. • These factors were partially offset by a 77 basis point decrease in the yield on interest-earning assets. The Apart from the impact of these items, noninterest income yield on loans, the single largest component, increased $16 million in 2008 compared with 2007. decreased 109 basis points. • In addition, the impact of noninterest-bearing sources Additional analysis of funding decreased 26 basis points due to lower Fund servicing fees increased $69 million in 2008, to $904 interest rates and a lower proportion of noninterest- million, compared with $835 million in 2007. The impact of bearing sources of funding to interest-earning assets. the December 2007 acquisition of Albridge Solutions Inc. (“Albridge Solutions”) and growth in Global Investment For comparing to the broader market, during 2008 the average Servicing’s offshore operations were the primary drivers of federal funds rate was 1.94% compared with 5.03% for 2007. this increase.

We expect our full-year 2009 net interest income to benefit Global Investment Servicing provided fund accounting/ from the impact of interest accretion of discounts resulting administration services for $839 billion of net fund investment from purchase accounting marks and deposit pricing assets and provided custody services for $379 billion of fund

28 investment assets at December 31, 2008, compared with $990 Other noninterest income for 2007 included a net loss related billion and $500 billion, respectively, at December 31, 2007. to our BlackRock investment of $127 million (the net of the The decrease in assets serviced was due to declines in asset two items described within the Summary section above), values and fund outflows resulting primarily from market trading income of $104 million, equity management gains of conditions in the second half of 2008. $102 million and gains related to our commercial mortgage loans held for sale, net of hedges, of $3 million. Asset management fees totaled $686 million in 2008, a decline of $98 million compared with 2007. The effect on fees See the BlackRock portion of the Business Segments Review of lower equity earnings from BlackRock, a $12 billion section of Item 7 of this Report for further information decrease in assets managed due to equity values related to regarding LTIP. Additional information regarding our wealth management, and the Hilliard Lyons divestiture were transactions related to Visa is included in Note 25 reflected in the decline compared with 2007. Excluding $53 Commitments And Guarantees in the Notes To Consolidated billion of assets acquired on December 31, 2008 resulting Financial Statements included in Item 8 of this Report. Further from our acquisition of National City, assets managed at details regarding our trading activities are included in the December 31, 2008 totaled $57 billion compared with $74 Market Risk Management – Trading Risk portion of the Risk billion at December 31, 2007. The Hilliard Lyons sale and the Management section of this Item 7 and information regarding impact of comparatively lower equity markets in 2008 drove equity management are included in the Market Risk the decline in assets managed. The Retail Banking section of Management-Equity and Other Investment Risk section. the Business Segments Review section of this Item 7 includes further discussion of assets under management. Other noninterest income typically fluctuates from period to period depending on the nature and magnitude of transactions Consumer services fees declined $69 million, to $623 million, completed. for 2008 compared with 2007. The sale of Hilliard Lyons more than offset the benefits of increased volume-related fees, We expect noninterest income in 2009 to reflect customer including debit card, credit card, bank brokerage and merchant growth, offset by softening consumer fees and by ongoing revenues. volatility of the more market-related categories. Corporate services revenue totaled $704 million in 2008 compared with $713 million in 2007. Higher revenue from PRODUCT REVENUE treasury management and other fees were more than offset by In addition to credit and deposit products for commercial lower merger and acquisition advisory fees and commercial customers, Corporate & Institutional Banking offers other mortgage servicing fees, net of amortization. services, including treasury management and capital markets- related products and services and commercial mortgage loan servicing, that are marketed by several businesses to Service charges on deposits grew $24 million, to $372 million, commercial and retail customers across PNC. in 2008 compared with 2007. The impact of our expansion into new markets contributed to the increase during 2008. Treasury management revenue, which includes fees as well as Net securities losses totaled $206 million in 2008 compared net interest income from customer deposit balances, increased with net securities losses of $5 million in 2007. Losses for 14% to $545 million in 2008 compared with $476 million in 2008 included other-than-temporary impairment charges of 2007. The increase was primarily related to the impact of our $312 million, including $74 million on our investment in expansion into new markets and strong growth in commercial preferred stock of FHLMC and FNMA that were partially payment card services and in cash and liquidity management offset by securities gains. products.

Other noninterest income totaled $284 million for 2008 Revenue from capital markets-related products and services compared with $423 million for 2007. Other noninterest totaled $336 million in 2008 compared with $290 million in income for 2008 included gains of $246 million related to our 2007. This increase was primarily driven by strong customer BlackRock LTIP shares adjustment, the $114 million gain interest rate derivative and foreign exchange activity partially from the sale of Hilliard Lyons, the $95 million gain from the offset by a decline in merger and acquisition advisory fees. redemption of a portion of our investment in Visa related to its March 2008 initial public offering, and the $61 million Commercial mortgage banking activities include revenue reversal of a legal contingency reserve referred to above. The derived from loan originations, commercial mortgage impact of these items was partially offset by losses related to servicing (including net interest income and noninterest our commercial mortgage loans held for sale of $197 million, income from loan servicing and ancillary services), gains from net of hedges, trading losses of $55 million and equity loan sales, valuation adjustments, net interest income on loans management losses of $24 million. held for sale, and related commitments and hedges.

29 Commercial mortgage banking activities resulted in revenue See also Item 1A Risk Factors and the Cautionary Statement of $65 million in 2008 compared with $252 million in 2007. Regarding Forward-Looking Information section of Item 7 of Revenue for 2008 reflected losses of $197 million on this Report. commercial mortgage loans held for sale, net of hedges, due to the impact of an illiquid market during most of 2008. The NONINTEREST EXPENSE comparable amount for 2007 was a gain of $3 million. Total noninterest expense was $4.430 billion for 2008 and Revenue for 2007 also reflected significant securitization $4.296 billion for 2007, an increase of $134 million, or 3%. activity. In addition, commercial mortgage servicing revenue Higher noninterest expense in 2008 compared with 2007 declined $53 million primarily due to a $35 million primarily resulted from investments in growth initiatives, impairment charge on commercial mortgage servicing rights including acquisitions, partially offset by the impact of the while net interest income from commercial mortgage loans sale of Hilliard Lyons and disciplined expense management. held for sale increased $61 million in 2008 compared with 2007 due to higher loans held for sale balances. Integration costs included in noninterest expense totaled $122 million for 2008, including $81 million in the fourth quarter, PROVISION FOR CREDIT LOSSES and $102 million for 2007. Integration costs for the fourth The provision for credit losses totaled $1.517 billion for 2008 quarter of 2008 included $71 million related to our National compared with $315 million for 2007. Of the total 2008 City acquisition. provision, $990 million was recorded in the fourth quarter, including $504 million of additional provision recorded on Noninterest expense for 2008 included the benefit of the December 31, 2008 to conform the National City loan reversal of $46 million of the $82 million Visa reserving methodology with ours. The differences in indemnification liability that we established in the fourth methodology include granularity of loss computations, quarter of 2007. Additional information regarding our statistical and quantitative factors rather than qualitative transactions related to Visa is included in Note 25 assessment, and the extent of current appraisals and risk Commitments And Guarantees in the Notes To Consolidated assessments. Financial Statements included in Item 8 of this Report.

In addition to the impact of National City, the higher provision Expense management will be a key driver in 2009 as we in 2008 compared with the prior year was driven by general intend to maintain our focus on continuous improvement and credit quality migration, including residential real estate to achieve cost savings targets associated with our National development and commercial real estate exposure, an increase City integration. We currently expect FDIC deposit insurance in net charge-offs, and growth in nonperforming loans. costs to increase significantly in 2009. Growth in our total credit exposure also contributed to the higher provision amounts in both comparisons. EFFECTIVE TAX RATE Our effective tax rate was 29.1% for 2008 and 29.9% for With a deteriorating economy, we expect credit migration will 2007. continue throughout 2009 as credit quality improvements will lag any economic turnaround. The Credit Risk Management portion of the Risk Management section of this Item 7 includes additional information regarding factors impacting the provision for credit losses.

30 ONSOLIDATED ALANCE HEET acquisition added $99.7 billion of loans, including $34.3 C B S billion of commercial, $16.0 billion of commercial real estate, REVIEW $30.5 billion of consumer and $10.6 billion of residential mortgage loans. SUMMARIZED BALANCE SHEET DATA In February 2008, we transferred the education loans in our December 31 - in millions 2008 2007 held for sale portfolio to the loan portfolio as further described Assets in the Loans Held For Sale section of this Consolidated Loans $175,489 $ 68,319 Balance Sheet Review. Investment securities 43,473 30,225 Cash and short-term investments 23,936 10,425 Details Of Loans Loans held for sale 4,366 3,927 Equity investments 8,554 6,045 December 31 - in millions 2008 2007 Goodwill 8,868 8,405 Commercial Other intangible assets 2,820 1,146 Retail/wholesale $ 11,482 $ 6,013 Other 23,575 10,428 Manufacturing 13,263 4,814 Total assets $291,081 $138,920 Other service providers 9,038 3,639 Liabilities Real estate related (a) 9,107 5,556 Deposits $192,865 $ 82,696 Financial services 5,194 1,419 Borrowed funds 52,240 30,931 Health care 3,201 1,464 Other 18,328 8,785 Other 16,034 5,634 Total liabilities 263,433 122,412 Total commercial 67,319 28,539 Minority and noncontrolling interests in Commercial real estate consolidated entities 2,226 1,654 Real estate projects 17,176 6,111 Total shareholders’ equity 25,422 14,854 Commercial mortgage 8,560 2,792 Total liabilities, minority and Total commercial real estate 25,736 8,903 noncontrolling interests, and shareholders’ equity $291,081 $138,920 Equipment lease financing 6,461 2,514 TOTAL COMMERCIAL LENDING 99,516 39,956 The summarized balance sheet data above is based upon our Consumer Consolidated Balance Sheet in Item 8 of this Report. Home equity Lines of credit 24,024 6,811 Our Consolidated Balance Sheet at December 31, 2008 Installment 14,252 7,636 Education 4,211 132 included National City’s assets and liabilities at estimated fair Automobile 1,667 1,513 value as of that date. This acquisition added approximately Credit card and other unsecured lines of $134 billion of assets, including $99.7 billion of loans, after credit 3,163 462 giving effect to purchase accounting adjustments, eliminations Other 5,172 1,839 and reclassifications. Total consumer 52,489 18,393 Various seasonal and other factors impact our period-end Residential real estate Residential mortgage 18,783 9,046 balances whereas average balances (discussed under the Residential construction 2,800 511 Balance Sheet Highlights section of this Item 7 and included in the Statistical Information section of Item 8 of this Report) Total residential real estate 21,583 9,557 are generally more indicative of underlying business trends TOTAL CONSUMER LENDING 74,072 27,950 apart from the impact of recent acquisitions. Other 1,901 413 Total loans $175,489 $68,319 An analysis of changes in selected balance sheet categories (a) Includes loans to customers in the real estate and construction industries. follows. Total loans represented 60% of total assets December 31, LOANS 2008 and 49% of total assets at December 31, 2007. A summary of the major categories of loans outstanding is shown in the following table. Outstanding loan balances Our loan portfolio continued to be diversified among reflect unearned income, unamortized discount and premium, numerous industries and types of businesses. The loans that and purchase discounts and premiums totaling $4.1 billion and we hold are also concentrated in, and diversified across, our $990 million at December 31, 2008 and 2007, respectively. principal geographic markets. See Note 4 Loans, Commitments To Extend Credit and Concentrations of Credit Loans increased $107.2 billion as of December 31, 2008 Risk in the Notes To Consolidated Financial Statements in compared with December 31, 2007. Our National City Item 8 of this Report for additional information.

31 The following table presents the valuation adjustments applied against National City loans as part of the purchase accounting process at December 31, 2008.

National City Loan Portfolio Assessment

December 31, 2008 Valuation Adjustment as%of Principal Valuation Fair Principal Dollars in billions Balance Adjustment Value Balance Valuation Adjustments By Loan Classification Commercial/Commercial real estate $ 56.5 $ 4.7 $51.8 8.3% Consumer 31.4 3.5 27.9 11.1% Residential real estate 19.2 4.4 14.8 22.9% Other .9 .9 Total $108.0 $12.6 $95.4(a) 11.7% Valuation Adjustments By Type Impaired loans Commercial/Commercial real estate $ 4.0 $ 2.2 $ 1.8 55.0% Consumer 5.8 1.9 3.9 32.8% Residential real estate 9.5 3.3 6.2 34.7% Total impaired loans 19.3 7.4 11.9 38.3% Performing loans 88.7 5.2 83.5 5.9% Total $108.0 $12.6 $95.4(a) 11.7% Valuation Adjustments By Component Fair value mark – impaired loans $ 7.4 Fair value mark – performing loans 2.4 Subtotal – fair value marks 9.8 National City reserve carryover on performing loans 2.3 Conforming credit reserve on performing loans .5 Total $12.6 (a) Represents total adjusted loans of $99.7 billion from the National City acquisition, net of $2.8 billion of loan loss reserves, $1.1 billion of loans previously classified as held for sale by National City, and $.4 billion of other purchase accounting adjustments.

Our home equity loan outstandings totaled $38.3 billion at loan and lease losses. We have allocated $2.6 billion, or 67%, December 31, 2008. In this portfolio, we consider the higher of the total allowance for loan and lease losses at risk loans to be those with a recent FICO credit score of less December 31, 2008 to these loans. We allocated $1.2 billion, than or equal to 660 and a loan-to-value ratio greater than or or 32%, of the remaining allowance at that date to consumer equal to 90%. We had $1.2 billion or approximately 3% of the lending outstandings and $47 million, or 1%, to all other total portfolio in this grouping at December 31, 2008. In our loans. This allocation also considers other relevant factors $18.8 billion residential mortgage portfolio, loans with a such as: recent FICO credit score of less than or equal to 660 and a • Actual versus estimated losses, loan-to-value ratio greater than 90% totaled $2.5 billion and • Regional and national economic conditions, comprised approximately 14% of this portfolio at • Business segment and portfolio concentrations, December 31, 2008. • Industry conditions, • The impact of government regulations, and Commercial lending outstandings are the largest category and • Risk of potential estimation or judgmental errors, are the most sensitive to changes in assumptions and including the accuracy of risk ratings. judgments underlying the determination of the allowance for

32 Included in total loans at December 31, 2008 were $27.2 specified contractual conditions. Commercial commitments billion of distressed loans. These loans include residential real are reported net of participations, assignments and estate development loans, cross-border leases, subprime syndications, primarily to financial institutions, totaling $8.6 residential mortgage loans, brokered home equity loans and billion at December 31, 2008 and $8.9 billion at December 31, certain other residential real estate loans. These loans require 2007. special servicing and management oversight given current market conditions or, in the case of cross-border leases, are Unfunded liquidity facility commitments and standby bond tax and yield challenged. The majority of the distressed loans purchase agreements totaled $7.0 billion at December 31, were from acquisitions, including $24.6 billion from National 2008 and $9.4 billion at December 31, 2007 and are included City. An allowance for loan and lease losses of $927 million in the preceding table primarily within the “Commercial” and was allocated to the distressed loans at December 31, 2008. A “Consumer” categories. The decrease from December 31, total of $537 million of the distressed loans were classified as 2007 was due to a $2.5 billion decline in Market Street nonperforming at that date. Details of distressed loans follow: commitments.

Details of Distressed Loan Portfolio In addition to credit commitments, our net outstanding standby letters of credit totaled $10.3 billion at December 31, In millions Dec. 31, 2008 2008 and $4.8 billion at December 31, 2007. Standby letters Commercial $28 of credit commit us to make payments on behalf of our Commercial real estate customers if specified future events occur. Real estate projects 2,847 Commercial mortgage 510 INVESTMENT SECURITIES Total commercial real estate 3,357 Equipment lease financing 858 Details Of Investment Securities TOTAL COMMERCIAL LENDING 4,243 Amortized Fair Consumer In millions Cost Value Home equity December 31, 2008 Lines of credit 5,474 SECURITIES AVAILABLE FOR SALE Installment 2,877 Debt securities Total home equity 8,351 Residential mortgage-backed Residential real estate Agency $22,744 $23,106 Residential mortgage 10,198 Nonagency 13,205 8,831 Residential construction 2,603 Commercial mortgage-backed 4,305 3,446 Asset-backed 2,069 1,627 Total residential real estate 12,801 TOTAL CONSUMER LENDING 21,152 US Treasury and government agencies 738 739 State and municipal 1,326 1,263 Other 1,761 Other debt 563 559 Total (a) $27,156 Corporate stocks and other 575 571 (a) Includes impaired loans attributable to National City totaling $10.3 billion, net of valuation adjustments. The pre-adjusted principal balance was $15.3 billion and Total securities available for sale $45,525 $40,142 represented the majority of the total $19.3 billion principal balance of total impaired SECURITIES HELD TO MATURITY loans included in the National City Loan Portfolio Assessment table on page 32. Debt securities Commercial mortgage-backed $ 1,945 $ 1,896 Net unfunded credit commitments are comprised of the Asset-backed 1,376 1,358 following: Other debt 10 10 Total securities held to maturity $ 3,331 $ 3,264 Net Unfunded Credit Commitments December 31, 2007 SECURITIES AVAILABLE FOR SALE December 31 - in millions 2008 (a) 2007 Debt securities Commercial and commercial real estate $ 59,982 $42,021 Residential mortgage-backed Home equity lines of credit 23,195 8,680 Agency $ 9,218 $ 9,314 Consumer credit card lines 19,028 969 Nonagency 11,929 11,638 Other 2,683 1,677 Commercial mortgage-backed 5,227 5,264 Total $104,888 $53,347 Asset-backed 2,878 2,770 (a) Includes $53.9 billion related to National City. U.S. Treasury and government agencies 151 155 State and municipal 340 336 Unfunded commitments are concentrated in our primary Other debt 85 84 geographic markets. Commitments to extend credit represent Corporate stocks and other 662 664 arrangements to lend funds or provide liquidity subject to Total securities available for sale $30,490 $30,225

33 Investment securities totaled $43.5 billion at December 31, At least quarterly we conduct a comprehensive security-level 2008, including $13.3 billion from the National City impairment assessment. Our process and methods have acquisition that were primarily US government agency evolved as market conditions have deteriorated and as more residential mortgage-backed securities. Securities represented research and other analyses have become available. We expect 15% of total assets at December 31, 2008 and 22% of total that our process and methods will continue to evolve. Our assets at December 31, 2007. assessment considers the security structure, recent security collateral performance metrics, our judgment and expectations We evaluate our portfolio of investment securities in light of of future performance, and relevant industry research and changing market conditions and other factors and, where analysis. We also consider the magnitude of the impairment appropriate, take steps intended to improve our overall and the amount of time that the security has been impaired in positioning. During the fourth quarter of 2008, we transferred our assessment. Results of the periodic assessment are $3.2 billion of securities available for sale to securities held to reviewed by a cross-functional senior management team maturity status and transferred $599 million of proprietary representing Asset & Liability Management, Finance, Balance trading securities to the available for sale portfolio. Sheet Risk Management, and Credit Policy. The senior management team considers the results of the assessments, as The transfer of available for sale securities to held to maturity well as other factors, in determining whether the impairment involved short-duration, high quality securities where is other-than-temporary. management’s intent to hold changed. In reassessing the classification of these securities, management also considered One of the key inputs into our impairment assessment process the current and ongoing illiquidity in the capital markets and is the level of delinquencies (i.e., 60 days and more) for any that securities prices are under increasing downward pressure, given security. In February 2009, we received updated even where there is no indication of credit impairment. delinquency information through January 31, 2009 for our The transfer of trading securities to available for sale occurred residential mortgage-backed and asset-backed securities against the backdrop of events occurring in the market that positions collateralized by first- and second-lien residential management determined to be unusual and highly unlikely to mortgage loans. Delinquencies have generally increased in the recur in the near term. As a result of these events, which January 2009 versus December 2008 month-over-month included the unprecedented market illiquidity and related comparison and, based upon our evaluation of these updated volatility, PNC’s economic hedges associated with these delinquency statistics, we currently expect that we will record trading positions become increasingly ineffective, resulting in additional other-than-temporary impairment charges in the increasing and unexpected earnings volatility. Coincident with first quarter of 2009. We currently do not expect that these the transfer of trading securities to available for sale, all charges will be material to our capital position. hedging instruments were terminated. If the current issues affecting the US housing market were to At December 31, 2008, the investment securities balance continue for the foreseeable future or worsen, or if market included a net unrealized loss of $5.4 billion, which volatility and illiquidity were to continue or worsen, or if represented the difference between fair value and amortized market interest rates were to increase appreciably, the cost. The comparable amount at December 31, 2007 was a net valuation of our available for sale securities portfolio could unrealized loss of $265 million. The fair value of investment continue to be adversely affected. See Note 7 Investment securities is impacted by interest rates, credit spreads, and Securities in the Notes To Consolidated Financial Statements market volatility and illiquidity. We believe that a substantial in Item 8 of this Report for additional information. portion of the decline in value of these securities is attributable to changes in market credit spreads and market Net unrealized gains and losses in the securities available for illiquidity and not from deterioration in the credit quality of sale portfolio are included in shareholders’ equity as individual securities or underlying collateral, where accumulated other comprehensive income or loss, net of tax. applicable. The net unrealized losses at December 31, 2008 The fair value of investment securities generally decreases did not reflect credit quality concerns of any significance with when interest rates increase and vice versa. In addition, the the underlying assets, which represented an overall well- fair value generally decreases when credit spreads widen and diversified, high quality portfolio. US government agency vice versa. residential mortgage-backed securities represented 53% of the investment securities portfolio at December 31, 2008. The expected weighted-average life of investment securities (excluding corporate stocks and other) was 3 years and 1 During 2008, we recorded other-than-temporary impairment month at December 31, 2008 and 3 years and 6 months at charges totaling $312 million, of which $151 million related December 31, 2007. to residential mortgage-backed securities, $87 million related to asset-backed securities collateralized by first- and second- We estimate that at December 31, 2008 the effective duration lien residential mortgage loans and $74 million related to our of investment securities was 3.7 years for an immediate 50 investment in preferred securities of FHLMC and FNMA. basis points parallel increase in interest rates and 3.1 years for

34 an immediate 50 basis points parallel decrease in interest FUNDING AND CAPITAL SOURCES rates. Comparable amounts at December 31, 2007 were 2.8 years and 2.5 years, respectively. Details Of Funding Sources

Loans Held For Sale December 31 - in millions 2008 2007 Deposits December 31 - in millions 2008 2007 Money market $ 67,678 $ 32,785 Commercial mortgage $2,158 $2,116 Demand 43,212 20,861 Residential mortgage 1,962 117 Retail certificates of deposit 58,315 16,939 Education 1,525 Savings 6,056 2,648 Other 246 169 Other time 13,620 2,088 Time deposits in foreign offices 3,984 7,375 Total $4,366 $3,927 Total deposits 192,865 82,696 The acquisition of National City added approximately $2.2 Borrowed funds billion of loans held for sale, primarily 1-4 family conforming Federal funds purchased and repurchase agreements 5,153 9,774 residential mortgages. The residential mortgage loans held for Federal Home Loan Bank borrowings 18,126 7,065 sale will be accounted for at fair value. Bank notes and senior debt 13,664 6,821 Subordinated debt 11,208 4,506 PNC adopted SFAS 159 beginning January 1, 2008 and Other 4,089 2,765 elected to account for certain commercial mortgage loans held Total borrowed funds 52,240 30,931 for sale at fair value. The balance of these assets was $1.4 Total $245,105 $113,627 billion at December 31, 2008. We stopped originating these types of loans during the first quarter of 2008. We intend to continue pursuing opportunities to reduce our commercial Total funding sources increased $131.5 billion at mortgage loans held for sale position at appropriate prices. We December 31, 2008 compared with the balance at sold and/or securitized $.6 billion of commercial mortgage December 31, 2007. loans held for sale carried at fair value in 2008. Losses of $197 million on commercial mortgage loans held for sale, net Deposits totaled $192.9 billion at December 31, 2008, of hedges, were included in other noninterest income for 2008 including $104 billion from the National City acquisition, compared with gains of $3 million in 2007. Net interest compared with $82.7 billion at December 31, 2007. Interest- income on commercial mortgage loans held for sale was $76 bearing deposits represented 81% of total deposits at million in 2008 compared with $15 million in 2007. The December 31, 2008 compared with 76% at December 31, non-cash losses reflected illiquid market conditions which 2007. The change in deposit composition reflected the higher began in the latter part of 2007. proportion of certificates of deposit and other interest-bearing deposits associated with National City. Borrowed funds We previously classified substantially all of our education totaled $52.2 billion at December 31, 2008 compared with loans as loans held for sale as we sold education loans to $30.9 billion at December 31, 2007. Borrowed funds at issuers of asset-backed paper when the loans were placed into December 31, 2008 included $18.2 billion of National City repayment status. During 2008, the secondary markets for obligations and $2.9 billion of senior notes guaranteed under education loans have been impacted by liquidity issues similar the FDIC’s TLGP-Debt Guarantee Program that PNC issued to those for other asset classes. In February 2008, given this in December 2008. outlook and the economic and customer relationship value inherent in this product, we transferred these loans at lower of The Liquidity Risk Management section of this Item 7 cost or market value from held for sale to the loan portfolio. contains further details regarding actions we have taken which We did not sell education loans during the remainder of 2008 impacted our borrowed funds balances during 2008. and do not anticipate sales of these transferred loans in the foreseeable future.

35 Capital cumulative preferred stock, dividend payments for this We manage our capital position by making adjustments to our preferred stock must be current before dividends can be paid on balance sheet size and composition, issuing debt, equity or junior shares, including our common stock, or junior shares can hybrid instruments, executing treasury stock transactions, be repurchased or redeemed. Also, the US Treasury’s consent managing dividend policies and retaining earnings. On will be required for any increase in common dividends per share March 1, 2009, we took a proactive step to build capital and above the most recent level prior to October 14, 2008 until the further strengthen our balance sheet as the Board of Directors third anniversary of the preferred stock issuance as long as the decided to reduce PNC’s quarterly common stock dividend US Treasury continues to hold any of the preferred stock. from $0.66 to $0.10 per share. Further, during that same period, the US Treasury’s consent will be required, unless the preferred stock is no longer held by Total shareholders’ equity increased $10.6 billion, to $25.4 the US Treasury, for any share repurchases with limited billion, at December 31, 2008 compared with December 31, exceptions, most significantly purchases of common shares in 2007 and reflected the following: connection with any benefit plan in the ordinary course of • The December 2008 issuance of $7.6 billion of business consistent with past practice. preferred stock and a common stock warrant to the US Department of Treasury under the TARP Capital Risk-Based Capital Purchase Program, • The December 2008 issuance of $5.6 billion of December 31 - dollars in millions 2008 2007 common stock in connection with the National City Capital components acquisition, Shareholders’ equity • The May 2008 issuance of $500 million of Series K Common $ 17,490 $ 14,847 preferred stock, Preferred 7,932 7 • The April 2008 issuance of $312 million of common Trust preferred capital securities 2,898 572 stock in connection with the Sterling acquisition, and Minority interest 1,506 985 • The December 2008 issuance of $150 million of Goodwill and other intangible assets (9,800) (8,853) Series L preferred stock in connection with the Eligible deferred income taxes on goodwill and other intangible assets 594 119 National City acquisition. Pension, other postretirement benefit These factors were partially offset by the $3.8 billion increase plan adjustments 666 177 from December 31, 2007 in accumulated other comprehensive Net unrealized securities losses, loss which included $3.5 billion of net unrealized securities after-tax 3,618 167 losses. The Investment Securities section of this Consolidated Net unrealized losses (gains) on cash Balance Sheet Review includes additional information flow hedge derivatives, after-tax (374) (175) Other (243) (31) regarding these unrealized losses. Tier 1 risk-based capital 24,287 7,815 Common shares outstanding were 443 million at Subordinated debt 5,676 3,024 December 31, 2008 and 341 million at December 31, 2007. Eligible allowance for credit losses 3,153 964 PNC issued approximately 95 million common shares in Total risk-based capital $ 33,116 $ 11,803 December 2008 and 4.6 million common shares in April 2008 Assets in connection with the closings of the National City and Risk-weighted assets, including Sterling acquisitions, respectively. off-balance sheet instruments and Our current common stock repurchase program permits us to market risk equivalent assets $251,106 $115,132 purchase up to 25 million shares of PNC common stock on the Adjusted average total assets 138,689 126,139 open market or in privately negotiated transactions. This Capital ratios program will remain in effect until fully utilized or until Tier 1 risk-based 9.7% 6.8% modified, superseded or terminated. The extent and timing of Total risk-based 13.2 10.3 share repurchases under this program will depend on a number Leverage 17.5 6.2 of factors including, among others, market and general Tangible common equity economic conditions, economic and regulatory capital Common shareholders’ equity $ 17,490 $ 14,847 considerations, alternative uses of capital, regulatory and Goodwill and other intangible assets (9,800) (8,853) contractual limitations, and the potential impact on our credit Total deferred income taxes on goodwill ratings. We did not purchase any shares during 2008 under and other intangible assets (a) 594 119 this program. During 2007, we purchased 11 million common Tangible common equity $ 8,284 $ 6,113 shares under our current and prior common stock repurchase Total assets excluding goodwill and programs at a total cost of approximately $800 million. other intangible assets, net of deferred income taxes $281,874 $130,185 Under the TARP Capital Purchase Program, there are Tangible common equity ratio 2.9% 4.7% restrictions on dividends and common share repurchases (a) As of December 31, 2008, deferred taxes on taxable combinations were added to associated with the preferred stock that we issued to the US eligible deferred income taxes for non-taxable combinations that are used in the Treasury in accordance with that program. As is typical with calculation of the tangible common equity ratio.

36 PNC’s Tier 1 risk-based capital ratio was 9.7% at and Note 23 Regulatory Matters in the Notes To Consolidated December 31, 2008 compared with 6.8% at December 31, Financial Statements in Item 8 of this Report for additional 2007. The increase in the ratio from December 31, 2007 information. We believe our bank subsidiaries will continue to included the issuance of Tier 1 eligible securities during the meet these requirements in 2009. first half of 2008 totaling $1.3 billion, including REIT preferred, noncumulative perpetual preferred, and trust OFF-BALANCE SHEET preferred securities. The “Perpetual Trust Securities” and “PNC Capital Trust E Trust Preferred Securities” portions of ARRANGEMENTS AND VIES the Off-Balance Sheet Arrangements and VIEs section of this Item 7 and Note 19 Shareholders’ Equity in Item 8 of this We engage in a variety of activities that involve Report have additional information regarding these securities. unconsolidated entities or that are otherwise not reflected in our Consolidated Balance Sheet that are generally referred to In addition, $7.6 billion of preferred stock and a common as “off-balance sheet arrangements.” The following sections stock warrant was issued to the US Department of the of this Report provide further information on these types of Treasury under the TARP Capital Purchase Program on activities: December 31, 2008. Tier 1 risk-based capital further increased • Commitments, including contractual obligations and as a result of $5.6 billion of common stock issued in the other commitments, included within the Risk National City acquisition and PNC’s assumption of $2.6 Management section of this Item 7, and billion of Tier 1 qualifying capital securities previously issued • Note 10 Securitization Activity and Note 25 by National City. These increases in capital were partially Commitments and Guarantees in the Notes To offset by the deduction of higher acquisition-related intangible Consolidated Financial Statements included in Item 8 assets. The positive effect on the Tier 1 ratio of the net of this Report. increase in capital was somewhat offset by an increase in risk- weighted assets primarily related to acquisitions, including The following provides a summary of variable interest entities National City. (“VIEs”), including those that we have consolidated and those in which we hold a significant variable interest but have not The leverage ratio at December 31, 2008 reflected the consolidated into our financial statements as of December 31, favorable impact on Tier 1 risk-based capital from the 2008 and December 31, 2007. issuance of securities under TARP and the issuance of PNC common stock in connection with the National City Consolidated VIEs – PNC Is Primary Beneficiary acquisition, both of which occurred on December 31, 2008. In Aggregate Aggregate addition, the ratio as of that date did not reflect any impact of In millions Assets Liabilities National City on PNC’s adjusted average total assets. Partnership interests in low income housing projects (a) PNC’s tangible common equity ratio was 2.9% at December 31, 2008 $1,499 $1,455 December 31, 2008 compared with 4.7% at December 31, December 31, 2007 $1,108 $1,108 2007. The decrease in the ratio from the prior year was the Credit Risk Transfer Transaction (b) result of the decline in the value of the securities available for December 31, 2008 $1,070 $1,070 sale portfolio and the value of assets in our pension plan. We (a) Amounts for December 31, 2008 include National City, which PNC acquired on that expect PNC’s tangible common equity ratio to be less date. sensitive to the impact of widening credit spreads on (b) National City-related transaction. accumulated other comprehensive loss going forward primarily due to the composition of the securities available for Non-Consolidated VIEs – Significant Variable Interests sale portfolio acquired from National City and a substantially Aggregate Aggregate PNC Risk higher level of common equity in the combined company. In millions Assets Liabilities of Loss December 31, 2008 The access to, and cost of, funding new business initiatives Market Street $4,916 $5,010 $6,965(a) including acquisitions, the ability to engage in expanded Collateralized debt obligations 20 2 business activities, the ability to pay dividends, the level of Partnership interests in tax deposit insurance costs, and the level and nature of regulatory credit investments (b) (c) (d) 1,095 652 920 oversight depend, in part, on a financial institution’s capital Total (c) $6,031 $5,662 $7,887 strength. December 31, 2007 Market Street $5,304 $5,330 $9,019(a) At December 31, 2008 and December 31, 2007, each of our Collateralized debt obligations 255 177 6 domestic bank subsidiaries was considered “well capitalized” Partnership interests in low based on US regulatory capital ratio requirements. See the income housing projects 298 184 155 Supervision And Regulation section of Item 1 of this Report Total $5,857 $5,691 $9,180

37 (a) PNC’s risk of loss consists of off-balance sheet liquidity commitments to Market the amount of $278 million due to illiquidity in the Street of $6.4 billion and other credit enhancements of $.6 billion at December 31, 2008. The comparable amounts were $8.8 billion and $.2 billion at December 31, commercial paper market. We considered these transactions as 2007. These liquidity commitments are included in the Net Unfunded Credit part of our evaluation of Market Street described below to Commitments table in the Consolidated Balance Sheet Review section of this determine that we are not the primary beneficiary. PNC made Report. (b) Amounts reported primarily represent low income housing projects. no other purchases of Market Street commercial paper during (c) Amounts include the impact of National City. 2007 or 2008. (d) Aggregate assets and aggregate liabilities at December 31, 2008 represent approximate balances due to limited availability of financial information associated with the acquired National City partnerships that we did not sponsor. PNC Bank, N.A. provides certain administrative services, the program-level credit enhancement and 99% of liquidity facilities to Market Street in exchange for fees negotiated Market Street based on market rates. PNC recognized program administrator Market Street Funding LLC (“Market Street”) is a multi-seller fees and commitment fees related to PNC’s portion of the asset-backed commercial paper conduit that is owned by an liquidity facilities of $21 million and $4 million, respectively, independent third party. Market Street’s activities primarily for the year ended December 31, 2008. The comparable involve purchasing assets or making loans secured by interests amounts were $13 million and $4 million for the year ended in pools of receivables from US corporations that desire December 31, 2007. access to the commercial paper market. Market Street funds the purchases of assets or loans by issuing commercial paper The commercial paper obligations at December 31, 2008 and which has been rated A1/P1 by Standard & Poor’s and December 31, 2007 were effectively collateralized by Market Moody’s, respectively, and is supported by pool-specific Street’s assets. While PNC may be obligated to fund under the credit enhancements, liquidity facilities and program-level $6.4 billion of liquidity facilities for events such as credit enhancement. Generally, Market Street mitigates its commercial paper market disruptions, borrower bankruptcies, potential interest rate risk by entering into agreements with its collateral deficiencies or covenant violations, our credit risk borrowers that reflect interest rates based upon its weighted under the liquidity facilities is secondary to the risk of first average commercial paper cost of funds. During 2007 and loss provided by the borrower or another third party in the 2008, Market Street met all of its funding needs through the form of deal-specific credit enhancement, such as by the over issuance of commercial paper. collateralization of the assets. Deal-specific credit enhancement that supports the commercial paper issued by Market Street commercial paper outstanding was $4.4 billion Market Street is generally structured to cover a multiple of at December 31, 2008 and $5.1 billion at December 31, 2007. expected losses for the pool of assets and is sized to generally The weighted average maturity of the commercial paper was meet rating agency standards for comparably structured 24 days at December 31, 2008 compared with 32 days at transactions. In addition, PNC would be required to fund $1.0 December 31, 2007. billion of the liquidity facilities if the underlying assets are in default. See Note 25 Commitments And Guarantees included Effective October 28, 2008, Market Street was approved to in the Notes To Consolidated Financial Statements of this participate in the Federal Reserve’s CPFF authorized under Report for additional information. Section 13(3) of the Federal Reserve Act. The CPFF commitment to purchase up to $5.4 billion of three-month PNC provides program-level credit enhancement to cover net Market Street commercial paper expires on October 30, 2009. losses in the amount of 10% of commitments, excluding As of December 31, 2008, Market Street’s participation in this explicitly rated AAA/Aaa facilities. PNC provides 100% of program totaled $445 million. These trades matured at the end the enhancement in the form of a cash collateral account of January 2009 and were replaced with commercial paper funded by a loan facility. This facility expires in March 2013. sold to investors. Until November 25, 2008, PNC provided only 25% of the enhancement in the form of a cash collateral account funded In the ordinary course of business during 2008, PNC Capital by a loan facility and provided a liquidity facility for the Markets, acting as a placement agent for Market Street, held a remaining 75% of program-level enhancement. maximum daily position in Market Street commercial paper of $75 million with an average of $12 million. This compares Market Street has entered into a Subordinated Note Purchase with a maximum daily position of $113 million with an Agreement (“Note”) with an unrelated third party. The Note average of $27 million for the year ended December 31, 2007. provides first loss coverage whereby the investor absorbs PNC Capital Markets owned no Market Street commercial losses up to the amount of the Note, which was $6.6 million as paper at December 31, 2008 and owned less than $1 million of of December 31, 2008. Proceeds from the issuance of the Note such commercial paper at December 31, 2007. PNC Bank, are held by Market Street in a first loss reserve account that National Association (“PNC Bank, N.A.”) purchased will be used to reimburse any losses incurred by Market overnight maturities of Market Street commercial paper on Street, PNC Bank, N.A. or other providers under the liquidity two days during September 2008 in the amounts of $197 facilities and the credit enhancement arrangements. million and $531 million and one day during October 2008 in

38 Assets of Market Street Funding LLC Based on current accounting guidance, we are not required to consolidate Market Street into our consolidated financial Weighted Average statements. However, if PNC would be determined to be the Remaining Maturity In primary beneficiary under FIN 46R, we would consolidate the In millions Outstanding Commitments Years commercial paper conduit at that time. Based on current December 31, 2008 (a) accounting guidance, to the extent that the par value of the Trade receivables $1,516 $3,370 2.34 assets in Market Street exceeded the fair value of the assets Automobile financing 992 992 3.94 upon consolidation, the difference would be recognized by Collateralized loan PNC as a loss in our Consolidated Income Statement in that obligations 306 405 1.58 period. Based on the fair value of the assets held by Market Credit cards 400 400 .19 Street at December 31, 2008, the consolidation of Market Residential mortgage 14 14 27.00 Street would not have had a material impact on our risk-based Other 1,168 1,325 1.76 capital ratios or debt covenants. Cash and miscellaneous receivables 520 Low Income Housing Projects Total $4,916 $6,506 2.34 We make certain equity investments in various limited December 31, 2007 (a) partnerships that sponsor affordable housing projects utilizing Trade receivables $1,375 $2,865 2.63 the Low Income Housing Tax Credit (“LIHTC”) pursuant to Automobile financing 1,387 1,565 4.06 Sections 42 and 47 of the Internal Revenue Code. The purpose Collateralized loan obligations 519 1,257 2.54 of these investments is to achieve a satisfactory return on Credit cards 769 775 .26 capital, to facilitate the sale of additional affordable housing Residential mortgage 37 720 .90 product offerings and to assist us in achieving goals associated Other 1,031 1,224 1.89 with the Community Reinvestment Act. The primary activities Cash and miscellaneous of the limited partnerships include the identification, receivables 186 development and operation of multi-family housing that is Total $5,304 $8,406 2.41 leased to qualifying residential tenants. Generally, these types (a) Market Street did not recognize an asset impairment charge or experience any of investments are funded through a combination of debt and material rating downgrades during 2007 or 2008. equity. We typically invest in these partnerships as a limited partner. Market Street Commitments by Credit Rating (a) Also, we are a national syndicator of affordable housing December 31, 2008 December 31, 2007 equity (together with the investments described above, the AAA/Aaa 19% 19% “LIHTC investments”). In these syndication transactions, we AA/Aa 6 6 create funds in which our subsidiaries are the general partner A/A 72 72 and sell limited partnership interests to third parties, and in BBB/Baa 3 3 some cases may also purchase a limited partnership interest in Total 100% 100% the fund. The purpose of this business is to generate income (a) The majority of our facilities are not explicitly rated by the rating agencies. All from the syndication of these funds and to generate servicing facilities are structured to meet rating agency standards for applicable rating levels. fees by managing the funds. General partner activities include selecting, evaluating, structuring, negotiating, and closing the We evaluated the design of Market Street, its capital structure, fund investments in operating limited partnerships, as well as the Note, and relationships among the variable interest holders oversight of the ongoing operations of the fund portfolio. under the provisions of FASB Interpretation No. 46, (Revised 2003) “Consolidation of Variable Interest Entities” (“FIN We evaluate our interests and third party interests in the 46R”). Based on this analysis, we are not the primary limited partnerships in determining whether we are the beneficiary as defined by FIN 46R and therefore the assets and primary beneficiary. The primary beneficiary determination is liabilities of Market Street are not reflected in our based on which party absorbs a majority of the variability. The Consolidated Balance Sheet. primary sources of variability in LIHTC investments are the tax credits, tax benefits of losses on the investments and We would consider changes to the variable interest holders development and operating cash flows. We have consolidated (such as new expected loss note investors and changes to LIHTC investments in which we absorb a majority of the program-level credit enhancement providers), terms of variability and thus are considered the primary beneficiary. expected loss notes, and new types of risks related to Market The assets are primarily included in Equity Investments and Street as reconsideration events. We review the activities of Other Assets on our Consolidated Balance Sheet with the Market Street on at least a quarterly basis to determine if a liabilities primarily classified in Other Liabilities and Minority reconsideration event has occurred.

39 Interest. Neither creditors nor equity investors in the LIHTC In January 2009, cumulative credit losses in the mortgage loan investments have any recourse to our general credit. The pool surpassed the principal balance of subordinated equity consolidated aggregate assets and liabilities of these LIHTC notes, giving PNC the right to put the first mezzanine note to investments are provided in the Consolidated VIEs – PNC Is the independent third party in accordance with the credit risk Primary Beneficiary table and reflected in the “Other” transfer agreement. In February 2009, PNC exercised its put business segment. option and received $16 million for the mezzanine note. Prior to this reconsideration event, management evaluated what We also have LIHTC investments in which we are not the impact this transaction would have on determining whether primary beneficiary, but are considered to have a significant we would remain the primary beneficiary of the SPE. variable interest based on our interests in the partnership. Management concluded, through reassessment of the expected These investments are disclosed in the Non-Consolidated losses and residual returns of the SPE, that we would remain VIEs – Significant Variable Interests table. The table also the primary beneficiary and accordingly should continue to reflects our maximum exposure to loss. Our maximum consolidate the SPE. exposure to loss is equal to our legally binding equity commitments adjusted for recorded impairment and Perpetual Trust Securities partnership results. We use the equity and cost methods to We issue certain hybrid capital vehicles that qualify as capital account for our investment in these entities with the for regulatory and rating agency purposes. investments reflected in Equity Investments on our Consolidated Balance Sheet. In addition, we increase our In February 2008, PNC Preferred Funding LLC (the “LLC”), recognized investments and recognize a liability for all legally one of our indirect subsidiaries, sold $375 million of 8.700% binding unfunded equity commitments. These liabilities are Fixed-to-Floating Rate Non-Cumulative Exchangeable reflected in Other Liabilities on our Consolidated Balance Perpetual Trust Securities of PNC Preferred Funding Trust III Sheet. (“Trust III”) to third parties in a private placement. In connection with the private placement, Trust III acquired $375 Credit Risk Transfer Transaction million of Fixed-to-Floating Rate Non-Cumulative Perpetual National City Bank (“NCB”) sponsored a special purpose Preferred Securities of the LLC (the “LLC Preferred entity (“SPE”) trust and concurrently entered into a credit risk Securities”). The sale was similar to the March 2007 private transfer agreement with an independent third-party to mitigate placement by the LLC of $500 million of 6.113% credit losses on a pool of nonconforming mortgage loans Fixed-to-Floating Rate Non-Cumulative Exchangeable Trust originated by its former First Franklin business unit. The SPE Securities (the “Trust II Securities”) of PNC Preferred was formed with a small contribution from NCB and was Funding Trust II (“Trust II”) in which Trust II acquired $500 structured as a bankruptcy-remote entity so that its creditors million of LLC Preferred Securities and to the December 2006 have no recourse to NCB. In exchange for a perfected security private placement by PNC REIT Corp. of $500 million of interest in the cash flows of the nonconforming mortgage 6.517% Fixed-to-Floating Rate Non-Cumulative loans, the SPE issued to NCB asset-backed securities in the Exchangeable Perpetual Trust Securities (the “Trust I form of senior, mezzanine, and subordinated equity notes. Securities”) of PNC Preferred Funding Trust I (“Trust I”) in NCB has incurred credit losses equal to the subordinated which Trust I acquired $500 million of LLC Preferred equity notes. NCB currently holds the right to put the Securities. mezzanine notes to the independent third-party at par. As of December 31, 2008, the value of the mezzanine notes was Each Trust III Security is automatically exchangeable into a $169 million. NCB holds the senior notes and will be share of Series J Non-Cumulative Perpetual Preferred Stock of responsible for credit losses in excess of this amount. PNC, each Trust II Security is automatically exchangeable into a share of Series I Non-Cumulative Perpetual Preferred The SPE was deemed to be a VIE as its equity was not Stock of PNC (“Series I Preferred Stock”), and each Trust I sufficient to finance its activities. NCB was determined to be Security is automatically exchangeable into a share of Series F the primary beneficiary of the SPE as it would absorb the Non-Cumulative Perpetual Preferred Stock of PNC Bank, majority of the expected losses of the SPE through its holding N.A. (“PNC Bank Preferred Stock”), in each case under of all of the asset-backed securities. Accordingly, this SPE certain conditions relating to the capitalization or the financial was consolidated and all of the entity’s assets, liabilities, and condition of PNC Bank, N.A. and upon the direction of the equity are intercompany balances and are eliminated in Office of the Comptroller of the Currency. consolidation. Nonconforming mortgage loans, including foreclosed properties, pledged as collateral to the SPE remain We entered into a replacement capital covenant in connection on the balance sheet and totaled $719 million at December 31, with the closing of the Trust I Securities sale (the “Trust 2008 reflecting the impact of fair value adjustments recorded RCC”) whereby we agreed that neither we nor our subsidiaries by PNC in conjunction with the acquisition. (other than PNC Bank, N.A. and its subsidiaries) would

40 purchase the Trust Securities, the LLC Preferred Securities or distributions with respect to, or redeem, purchase or acquire or the PNC Bank Preferred Stock unless such repurchases or make a liquidation payment with respect to, any of its equity redemptions are made from the proceeds of the issuance of capital securities during the next succeeding period (other than certain qualified securities and pursuant to the other terms and to holders of the LLC Preferred Securities and any parity conditions set forth in the replacement capital covenant with equity securities issued by the LLC) except: (i) in the case of respect to the Trust RCC. dividends payable to subsidiaries of PNC Bank, N.A., to PNC Bank, N.A. or another wholly-owned subsidiary of PNC Bank, We also entered into a replacement capital covenant in N.A. or (ii) in the case of dividends payable to persons that are connection with the closing of the Trust II Securities sale (the not subsidiaries of PNC Bank, N.A., to such persons only if, “Trust II RCC”) whereby we agreed until March 29, 2017 that (A) in the case of a cash dividend, PNC has first irrevocably neither we nor our subsidiaries would purchase or redeem the committed to contribute amounts at least equal to such cash Trust II Securities, the LLC Preferred Securities or the Series I dividend or (B) in the case of in-kind dividends payable by Preferred Stock unless such repurchases or redemptions are PNC REIT Corp., PNC has committed to purchase such made from the proceeds of the issuance of certain qualified in-kind dividend from the applicable PNC REIT Corp. holders securities and pursuant to the other terms and conditions set in exchange for a cash payment representing the market value forth in the replacement capital covenant with respect to the of such in-kind dividend, and PNC has committed to Trust RCC. contribute such in-kind dividend to PNC Bank, N.A.

As of December 31, 2008, each of the Trust RCC and the PNC Capital Trust E Trust Preferred Securities Trust II RCC are for the benefit of holders of our $200 million In February 2008, PNC Capital Trust E issued $450 million of of Floating Rate Junior Subordinated Notes issued in June 7.75% Trust Preferred Securities due March 15, 2068 (the 1998. We filed a copy of each of the Trust RCC and the Trust “Trust E Securities”). PNC Capital Trust E’s only assets are II RCC with the SEC as Exhibit 99.1 to PNC’s Form 8-K filed $450 million of 7.75% Junior Subordinated Notes due on December 8, 2006 and as Exhibit 99.1 to PNC’s Form 8-K March 15, 2068 and issued by PNC (the “JSNs”). The Trust E filed on March 30, 2007, respectively. Securities are fully and unconditionally guaranteed by PNC. We may, at our option, redeem the JSNs at 100% of their PNC has contractually committed to Trust II and Trust III that principal amount on or after March 15, 2013. if full dividends are not paid in a dividend period on the Trust II Securities or the Trust III Securities, as applicable, or the In connection with the closing of the Trust E Securities sale, LLC Preferred Securities held by Trust II or Trust III, as we agreed that, if we have given notice of our election to defer applicable, PNC will not declare or pay dividends with respect interest payments on the JSNs or a related deferral period is to, or redeem, purchase or acquire, any of its equity capital continuing, then PNC would be subject during such period to securities during the next succeeding dividend period, other restrictions on dividends and other provisions protecting the than: (i) purchases, redemptions or other acquisitions of shares status of the JSN debenture holder similar to or in some ways of capital stock of PNC in connection with any employment more restrictive than those potentially imposed under the contract, benefit plan or other similar arrangement with or for Exchange Agreements with Trust II and Trust III, as described the benefit of employees, officers, directors or consultants, above. PNC Capital Trusts C and D have similar protective (ii) purchases of shares of common stock of PNC pursuant to a provisions with respect to $500 million in principal amount of contractually binding requirement to buy stock existing prior junior subordinated debentures. Also, in connection with the to the commencement of the extension period, including under closing of the Trust E Securities sale, we entered into a a contractually binding stock repurchase plan, (iii) any replacement capital covenant, a copy of which was attached as dividend in connection with the implementation of a Exhibit 99.1 to PNC’s Form 8-K filed on February 13, 2008 shareholders’ rights plan, or the redemption or repurchase of and which is described in Note 14 Capital Securities of any rights under any such plan, (iv) as a result of an exchange Subsidiary Trusts in Item 8 of this Report. or conversion of any class or series of PNC’s capital stock for any other class or series of PNC’s capital stock, (v) the Acquired Entity Trust Preferred Securities purchase of fractional interests in shares of PNC capital stock As a result of the National City acquisition, we assumed pursuant to the conversion or exchange provisions of such obligations with respect to $2.4 billion in principal amount of stock or the security being converted or exchanged or (vi) any junior subordinated debentures issued by the acquired entity. stock dividends paid by PNC where the dividend stock is the As a result of the Mercantile, Yardville and Sterling same stock as that on which the dividend is being paid. acquisitions, we assumed obligations with respect to $158 million in principal amount of junior subordinated debentures PNC Bank, N.A. has contractually committed to Trust I that if issued by the acquired entities. Under the terms of these full dividends are not paid in a dividend period on the Trust I debentures, if there is an event of default under the debentures Securities, LLC Preferred Securities or any other parity equity or PNC exercises its right to defer payments on the related securities issued by the LLC, neither PNC Bank, N.A. nor its trust preferred securities issued by the statutory trusts or there subsidiaries will declare or pay dividends or other is a default under PNC’s guarantee of such payment

41 obligations, PNC would be subject during the period of such Fair Value Measurements – Summary default or deferral to restrictions on dividends and other provisions protecting the status of the debenture holders December 31, 2008 Total Fair similar to or in some ways more restrictive than those In millions Level 1 Level 2 Level 3 Value potentially imposed under the Exchange Agreements with Assets Trust II and Trust III, as described above. Securities available for sale $347 $21,633 $4,837 $26,817 We are subject to replacement capital covenants (“RCCs”) Financial derivatives (a) 16 5,582 125 5,723 with respect to four tranches of junior subordinated debentures Trading securities (b) 89 529 73 691 inherited from National City, copies of which RCCs were Commercial mortgage attached, respectively, as Exhibit 99.2 to the National City loans held for sale (c) 1,400 1,400 Form 8-K filed on February 4, 2008 and Exhibit 99.1 to the Customer resale National City Forms 8-K filed on November 9, 2006, May 25, agreements (d) 1,072 1,072 2007 and August 30, 2007. See Note 14 Capital Securities of Equity investments 571 571 Other assets 144 6 150 Subsidiary Trusts. Similarly, we are subject to a replacement capital covenant with respect to our Series L Preferred Stock, Total assets $452 $28,960 $7,012 $36,424 a copy of which was attached as Exhibit 99.1 to National Liabilities City’s Form 8-K filed on February 4, 2008. See Note 19 Financial derivatives (e) $2 $4,387 $22 $4,411 Shareholders’ Equity in Item 8 of this Report. Trading securities sold short (f) 182 207 389 Other liabilities 9 9 AIR ALUE EASUREMENTS AND AIR F V M F Total liabilities $184 $ 4,603 $ 22 $ 4,809 VALUE OPTION (a) Included in other assets on the Consolidated Balance Sheet. We adopted SFAS 157, “Fair Value Measurements” (“SFAS (b) Included in trading securities on the Consolidated Balance Sheet. Fair value includes 157”), and SFAS 159, “The Fair Value Option for Financial net unrealized losses of $27.5 million. (c) Included in loans held for sale on the Consolidated Balance Sheet. PNC has elected Assets and Financial Liabilities – Including an amendment of the fair value option under SFAS 159 for certain commercial mortgage loans held FASB Statement No. 115” (“SFAS 159”), on January 1, 2008. for sale. SFAS 157 defines fair value, establishes a framework for (d) Included in federal funds sold and resale agreements on the Consolidated Balance Sheet. PNC has elected the fair value option under SFAS 159 for this item. measuring fair value, and expands disclosures about fair value (e) Included in other liabilities on the Consolidated Balance Sheet. measurements. SFAS 159 permits entities to choose to (f) Included in other borrowed funds on the Consolidated Balance Sheet. measure many financial instruments and certain other items at fair value. Under SFAS 159, we elected to fair value certain Valuation Hierarchy commercial mortgage loans classified as held for sale and The following is an outline of the valuation methodologies certain customer resale agreements and bank notes to align the used for measuring fair value under SFAS 157 for the major accounting for the changes in the fair value of these financial items above. SFAS 157 focuses on the exit price in the instruments with the changes in the value of their related principal or most advantageous market for the asset or liability hedges. See Note 8 Fair Value in the Notes To Consolidated in an orderly transaction between willing market participants Financial Statements under Item 8 of this Report for further and establishes a reporting hierarchy to maximize the use of information. observable inputs. The fair value hierarchy (i.e., Level 1, Level 2, and Level 3) is described in detail in Note 8 Fair At December 31, 2008, fair value assets represented 13% of Value in the Notes To Consolidated Financial Statements total assets and fair value liabilities represented 2% of total under Item 8 of this Report. liabilities. Assets and liabilities measured at fair value on a recurring basis, including instruments for which PNC has We characterize active markets as those where transaction elected the fair value option, are summarized below. As volumes are sufficient to provide objective pricing prescribed by SFAS 157, the assets and liabilities of National information, with reasonably narrow bid/ask spreads and City acquired in a purchase business combination on where dealer quotes received do not vary widely. Inactive December 31, 2008 were excluded from the table below and markets are characterized by low transaction volumes, price related disclosures. quotations which vary substantially among market participants, or in which minimal information is released publicly. We also consider nonperformance risks including credit risk as part of our valuation methodology for all assets measured at fair value. Any models used to determine fair values or to validate dealer quotes based on the descriptions

42 below are subject to review and independent testing as part of December 31, 2008 Agency Non-Agency our model validation and internal control testing processes. Residential Residential Commercial Other Significant models are tested by our Model Validation Mortgage- Mortgage- Mortgage- Asset- Backed Backed Backed Back Committee on at least an annual basis. In addition, we have Dollars in millions Securities Securities Securities Securities teams, independent of the traders, verify marks and Fair Value $12,742 $7,420 $3,419 $1,492 assumptions used for valuations at each period end. % of Fair Value: By Vintage Securities 2008 36% 1% Securities include both the available for sale and trading 2007 24% 15% 10% 15% portfolios. We use prices sourced from pricing services, dealer 2006 23% 23% 31% 30% quotes or recent trades to determine the fair value of 2005 5% 35% 12% 31% securities. Approximately 75% of our positions are valued 2004 and earlier 12% 26% 47% 24% using pricing services provided by the Lehman Index and Total 100% 100% 100% 100% IDC. Lehman Index prices are set with reference to market By Credit rating activity for highly liquid assets such as agency mortgage- Agency 100% 1% backed securities, and matrix priced for other assets, such as AAA 82% 98% 71% CMBS and asset-backed securities. IDC primarily uses matrix AA 4% 1% 7% pricing for the instruments we value using this service, such as A5%2% agency adjustable rate mortgage securities, agency CMOs and BBB 2% 8% municipal bonds. Dealer quotes received are typically BB 3% 6% non-binding and corroborated with other dealers’ quotes, by B1%2% reviewing valuations of comparable instruments, or by Lower than B 2% 4% comparison to internal valuations. The majority of our No rating 1% securities are classified as Level 2 in the fair value hierarchy. Total 100% 100% 100% 100% In circumstances where market prices are limited or By FICO Score unavailable, valuations may require significant management >720 68% 13% judgments or adjustments to determine fair value. In these <720 or >660 30% 47% cases, the securities are classified as Level 3. <660 1% No FICO score 100% 2% 100% 39% The primary valuation technique for securities classified as Total 100% 100% 100% 100% Level 3 is to identify a proxy security, market transaction or index. The proxy selected generally has similar credit, tenor, Residential Mortgage-Backed Securities duration, pricing and structuring attributes to the PNC At December 31, 2008, our residential mortgage-backed position. The price, market spread, or yield on the proxy is securities portfolio was comprised of $12.7 billion fair value then used to calculate an indicative market price for the of US government agency-backed securities (substantially all security. Depending on the nature of the PNC position and its classified as available for sale) and $7.4 billion fair value of attributes relative to the proxy, management may make private-issuer securities (all classified as available for sale). additional adjustments to account for market conditions, The agency securities are generally collateralized by 1-4 liquidity, and nonperformance risk, based on various inputs family, conforming, fixed-rate residential mortgages. The including recent trades of similar assets, single dealer quotes, private-issuer securities are also generally collateralized by and/or other observable and unobservable inputs. 1-4 family residential mortgages. The mortgage loans underlying the private-issuer securities are generally

43 non-conforming (i.e., original balances in excess of the sources, including industry pricing services, or corroborated amount qualifying for agency securities) and predominately through recent trades, dealer quotes, yield curves, implied have interest rates that are fixed for a period of time, after volatility or other market related data. Certain derivatives, which the rate adjusts to a floating rate based upon a such as total rate of return swaps, are corroborated to the contractual spread that is indexed to a market rate (i.e., a CMBX index. These derivatives are classified as Level 2. “hybrid ARM”). Derivatives priced using significant management judgment or assumptions are classified as Level 3. The fair values of our Substantially all of the securities are senior tranches in the derivatives are adjusted for nonperformance risk including subordination structure and have credit protection in the form credit risk as appropriate. Our nonperformance risk of credit enhancement, over-collateralization and/or excess adjustment is computed using internal assumptions based spread accounts. At December 31, 2008, $419 million, or 6%, primarily on historical default and recovery observations. The of private-issuer securities were rated below “BBB” by at least credit risk adjustment is not currently material to the overall one national rating agency or not rated. derivatives valuation.

For eight securities, we recorded other-than-temporary Commercial Mortgage Loans and Commitments Held for impairment charges of $151 million in 2008. Sale Effective January 1, 2008, we elected to account for Commercial Mortgage-Backed Securities commercial mortgage loans classified as held for sale and The commercial mortgage-backed securities portfolio was intended for securitization at fair value under the provisions of $3.4 billion fair value at December 31, 2008 (all classified as SFAS 159. Based on the significance of unobservable inputs, available for sale), and consisted of fixed-rate, private-issuer we classify this portfolio as Level 3. As such, a synthetic securities collateralized by non-residential properties, securitization methodology was used historically to value the primarily retail properties, office buildings, and multi-family loans and the related unfunded commitments on an aggregate housing. Substantially all of the securities are the most senior basis based upon current commercial mortgage-backed tranches in the subordination structure. securities (CMBS) market structures and conditions. The election of the fair value option aligns the accounting for the At December 31, 2008, $18 million, or 1%, of the commercial commercial mortgages with the related hedges. It also mortgage-backed securities were not rated. eliminates the requirements of hedge accounting under SFAS 133. Due to the inactivity in the CMBS securitization market We recorded no other-than-temporary impairment charges on in 2008, we determined the fair value of commercial mortgage commercial mortgage-backed securities in 2008. loans held for sale by using a whole loan methodology. Based on the significance of unobservable inputs, we classify this Other Asset-Backed Securities portfolio as Level 3. Valuation assumptions included The asset-backed securities portfolio was $1.5 billion fair observable inputs based on whole loan sales, both observed in value at December 31, 2008 (all classified as available for the market and actual sales from our portfolio and new loan sale), and consisted of fixed-rate and floating-rate, private- origination spreads during the quarter. Adjustments were issuer securities collateralized primarily by various consumer made to the assumptions to account for uncertainties, credit products, including first-lien residential mortgage loans, including market conditions, and liquidity. Credit risk was credit cards, and automobile loans. Substantially all of the included as part of our valuation process for these loans by securities are senior tranches in the subordination structure considering expected rates of return for market participants for and have credit protection in the form of credit enhancement, similar loans in the marketplace. over-collateralization and/or excess spread accounts. Customer Resale Agreements At December 31, 2008, $184 million, or 12%, of the asset- Effective January 1, 2008, we elected to account for structured backed securities were rated below “BBB” by at least one resale agreements at fair value, which are economically national rating agency or not rated. hedged using free-standing financial derivatives. The fair value for structured resale agreements is determined using a For seven asset-backed securities, we recorded other-than- model which includes observable market data as inputs such temporary impairment charges totaling approximately $87 as interest rates. Readily observable market inputs to this million in 2008. model can be validated to external sources, including yield curves, implied volatility or other market related data. Financial Derivatives Exchange-traded derivatives are valued using quoted market Equity Investments prices and are classified as Level 1. However, the majority of The valuation of direct and indirect private equity investments derivatives that we enter into are executed over-the-counter requires significant management judgment due to the absence and are valued using internal techniques. Readily observable of quoted market prices, inherent lack of liquidity and the market inputs to these models can be validated to external long-term nature of such investments. The carrying values of

44 direct and affiliated partnership interests reflect the expected BUSINESS SEGMENTS REVIEW exit price and are based on various techniques including In 2008 and 2007, we had four major businesses engaged in publicly traded price, multiples of adjusted earnings of the providing banking, asset management and global fund entity, independent appraisals, anticipated financing and sale processing products and services. Business segment results, transactions with third parties, or the pricing used to value the including inter-segment revenues, and a description of each entity in a recent financing transaction. Indirect investments in business are included in Note 27 Segment Reporting included private equity funds are valued based on the financial in the Notes To Consolidated Financial Statements under statements that we receive from their managers. Due to the Item 8 of this Report. time lag in our receipt of the financial information and based on a review of investments and valuation techniques applied, Certain revenue and expense amounts included in this adjustments to the manager provided value are made when Business Segments Review differ from the amounts shown in available recent portfolio company information or market Note 27 due to the presentation in this Business Segments information indicates a significant change in value from that Review of business revenue on a taxable-equivalent basis, provided by the manager of the fund. These investments are income statement classification differences related to Global classified as Level 3. Investment Servicing, the inclusion of the results of Hilliard Lyons, including the March 2008 gain on sale, in the “Other” Level 3 Assets and Liabilities category, and the inclusion of 2008 Albridge Solutions and Under SFAS 157, financial instruments are considered Level 3 Coates Analytics and 2007 BlackRock/MLIM transaction when their values are determined using pricing models, integration costs in the “Other” category. discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is Results of individual businesses are presented based on our unobservable. At December 31, 2008, Level 3 fair value assets management accounting practices and management structure. of $7.012 billion represented 19% of total assets at fair value There is no comprehensive, authoritative body of guidance for and 2% of total assets. Level 3 fair value liabilities of $22 management accounting equivalent to GAAP; therefore, the million at December 31, 2008 represented less than 1% of financial results of our individual businesses are not total liabilities at fair value and less than 1% of total liabilities necessarily comparable with similar information for any other at that date. company. We refine our methodologies from time to time as our management accounting practices are enhanced and our During 2008, securities transferred into Level 3 from Level 2 businesses and management structure change. Financial exceeded securities transferred out by $4.3 billion. These results are presented, to the extent practicable, as if each primarily related to private issuer asset-backed securities, business operated on a stand-alone basis. As permitted under auction rate securities, residential mortgage-backed securities GAAP, we have aggregated the business results for certain and corporate bonds and occurred due to reduced volume of similar operating segments for financial reporting purposes. recently executed transactions and the lack of corroborating market price quotations for these instruments. Other Level 3 Assets receive a funding charge and liabilities and capital assets include commercial mortgage loans held for sale, receive a funding credit based on a transfer pricing private equity investments and other assets. methodology that incorporates product maturities, duration and other factors. Capital is intended to cover unexpected Total securities measured at fair value at December 31, 2008 losses and is assigned to the banking and servicing businesses included securities available for sale and trading securities using our risk-based economic capital model. We have consisting primarily of residential and commercial mortgage- assigned capital equal to 6% of funds to Retail Banking to backed securities and other asset-backed securities. Unrealized reflect the capital required for well-capitalized domestic banks gains and losses on available for sale securities do not impact and to approximate market comparables for this business. The liquidity or risk-based capital. However, reductions in the capital assigned for Global Investment Servicing reflects its credit ratings of these securities would have an impact on the legal entity shareholder’s equity. determination of risk-weighted assets which could reduce our regulatory capital ratios. In addition, other-than-temporary We have allocated the allowances for loan and lease losses impairments on available for sale securities would reduce our and unfunded loan commitments and letters of credit based on regulatory capital ratios. our assessment of risk inherent in the business segment loan portfolios. Our allocation of the costs incurred by operations and other shared support areas not directly aligned with the businesses is primarily based on the use of services.

45 Total business segment financial results differ from total Employee data as reported by each business segment in the consolidated results. The impact of these differences is tables that follow reflect PNC legacy staff directly employed reflected in the “Other” category. “Other” for purposes of this by the respective businesses and excludes corporate and Business Segments Review and the Business Segment shared services employees. National City legacy employees Highlights in the Executive Summary includes residual totaling 31,374 at December 31, 2008 are not included in any activities that do not meet the criteria for disclosure as a of PNC’s business segment tables. separate reportable business, such as gains or losses related to BlackRock transactions including LTIP share distributions Beginning in the first quarter of 2009, PNC expects to have and obligations, earnings and gains or losses related to three new reportable business segments which are described in Hilliard Lyons, integration costs, asset and liability Note 28 Subsequent Event included in the Notes To management activities including net securities gains or losses Consolidated Financial Statements under Item 8 of this and certain trading activities, equity management activities, Report. differences between business segment performance reporting and financial statement reporting (GAAP), intercompany eliminations, and most corporate overhead.

Results Of Businesses – Summary

Earnings Revenue Average Assets (a) Year ended December 31 - in millions 2008 2007 2008 2007 2008 2007 Retail Banking (b) $ 429 $ 876 $3,608 $3,580 $ 46,578 $ 41,943 Corporate & Institutional Banking 225 432 1,531 1,538 36,994 29,052 BlackRock 207 253 261 338 4,240 4,259 Global Investment Servicing (c) 122 128 916 831 5,278 2,476 Total business segments 983 1,689 6,316 6,287 93,090 77,730 Other (d) (e) (101) (222) 874 418 48,930 45,688 Total consolidated $ 882 $1,467 $7,190 $6,705 $142,020 $123,418 (a) Period-end balances for BlackRock and Global Investment Servicing. (b) Amounts reflect the reclassification of results for Hilliard Lyons, which we sold on March 31, 2008, and the related gain on sale, from Retail Banking to “Other.” (c) Global Investment Servicing revenue represents the sum of servicing revenue and nonoperating income (expense) less debt financing costs. Global Investment Servicing income classified as net interest income (expense) in Note 27 Segment Reporting in the Notes To Consolidated Financial Statements included in Item 8 of this Report represents the interest components of nonoperating income (net of nonoperating expense) and debt financing. (d) “Other” for 2008 includes $422 million of after-tax integration costs, including conforming provision for credit losses, primarily related to National City. “Other” for the 2007 includes $99 million of after-tax integration costs and $53 million of after-tax Visa indemnification costs.

“Other” also includes results related to our cross-border lease portfolio for both 2008 and 2007. However, 2006 results for this item are included in Corporate & Institutional Banking in Note 27 Segment Reporting in the Notes To Consolidated Financial Statements included in Item 8 of this Report. (e) “Other” average assets are comprised primarily of investment securities and residential mortgage loans associated with asset and liability management activities.

46 At December 31 RETAIL BANKING (a) Dollars in millions except as noted 2008 2007 OTHER INFORMATION CONTINUED (b) (c) Year ended December 31 Dollars in millions except as noted 2008 2007 Other statistics: Full-time employees 11,481 11,022 INCOME STATEMENT Part-time employees 2,363 2,298 Net interest income $1,992 $2,062 ATMs 4,041 3,900 Noninterest income Branches (e) 1,148 1,109 Asset management 420 445 Service charges on deposits 362 339 ASSETS UNDER ADMINISTRATION Brokerage 153 134 (in billions) (f) Consumer services 419 392 Assets under management Other 262 208 Personal $38 $49 Institutional 19 20 Total noninterest income 1,616 1,518 Total $57 $69 Total revenue 3,608 3,580 Asset Type Provision for credit losses 612 138 Equity $26 $40 Noninterest expense 2,284 2,045 Fixed income 19 17 Pretax earnings 712 1,397 Liquidity/other 12 12 Income taxes 283 521 Total $57 $69 Earnings $429 $876 Nondiscretionary assets under administration AVERAGE BALANCE SHEET Personal $23 $30 Loans Institutional 64 82 Consumer Total $87 $112 Home equity $14,678 $14,209 Indirect 2,050 1,897 Asset Type Equity $34 $49 Education 2,012 110 Fixed income 19 27 Other consumer 1,761 1,487 Liquidity/other 34 36 Total consumer 20,501 17,703 Total $87 $112 Commercial and commercial real estate 14,677 12,534 Floor plan 997 978 Home equity portfolio credit statistics: Residential mortgage 2,362 1,992 % of first lien positions 38% 39% Other 67 70 Weighted average loan-to-value ratios (g) 73% 73% Weighted average FICO scores (h) 727 727 Total loans 38,604 33,277 Annualized net charge-off ratio .52% .20% Goodwill and other intangible assets 6,132 4,920 Loans 90 days past due .58% .37% Loans held for sale 329 1,564 Other assets 1,513 2,182 Checking-related statistics: Retail Banking checking relationships 2,432,000 2,272,000 Total assets $46,578 $41,943 Consumer DDA households using online Deposits banking 1,238,000 1,091,000 Noninterest-bearing demand $10,860 $10,513 % of consumer DDA households using online Interest-bearing demand 9,583 8,876 banking 57% 54% Money market 19,677 16,786 Consumer DDA households using online bill payment 882,000 667,000 Total transaction deposits 40,120 36,175 % of consumer DDA households using online Savings 2,701 2,678 bill payment 41% 33% Certificates of deposit 16,397 16,637 Small business loans and managed deposits: Total deposits 59,218 55,490 Small business loans $13,483 $13,049 Other liabilities 329 417 Managed deposits: Capital 3,773 3,481 On-balance sheet Total funds $63,320 $59,388 Noninterest-bearing demand (i) $8,319 $5,994 PERFORMANCE RATIOS Interest-bearing demand 2,157 1,873 Return on average capital 11% 25% Money market 3,638 3,152 Noninterest income to total revenue 45 42 Certificates of deposit 880 1,068 Efficiency 63 57 Off-balance sheet (j) Small business sweep checking 3,140 2,780 Total managed deposits $18,134 $14,867 OTHER INFORMATION (b) (c) Credit-related statistics: Brokerage statistics: Commercial nonperforming assets $540 $187 Financial consultants (k) 414 364 Consumer nonperforming assets 79 38 Full service brokerage offices 23 24 Brokerage account assets (billions) $15 $19 Total nonperforming assets (d) $619 $225 (a) Information for all periods presented excludes the impact of National City, which Commercial net charge-offs $239 $71 PNC acquired on December 31, 2008, and Hilliard Lyons, which was sold on Consumer net charge-offs 129 60 March 31, 2008, and whose results have been reclassified to “Other.” Total net charge-offs $368 $131 (b) Presented as of December 31 except for net charge-offs and net charge-off ratio. (c) Amounts as of and for the year ended December 31, 2008 include the impact of 1.52% Commercial net charge-off ratio .52% Yardville. Amounts subsequent to April 4, 2008 include the impact of Sterling. Consumer net charge-off ratio .56% .30% Total net charge-off ratio .95% .39%

47 (d) Includes nonperforming loans of $605 million at December 31, 2008 and $215 • Retail Banking continued to invest in the branch million at December 31, 2007. (e) Excludes certain satellite branches that provide limited products and service hours. network. During 2008, we opened 19 new branches, (f) Excludes brokerage account assets. consolidated 45 branches, and acquired 65 branches (g) Calculated as of origination date. for a total of 1,148 branches at December 31, 2008. (h) Represents the most recent FICO scores that we have on file. (i) The increase at December 31, 2008 compared with December 31, 2007 reflected We continue to work to optimize our network by large customer deposit activity in the last few days of December 2008. opening new branches in high growth areas, (j) Represents small business balances. These balances are swept into liquidity products relocating branches to areas of higher market managed by other PNC business segments, the majority of which are off-balance sheet. opportunity, and consolidating branches in areas of (k) Financial consultants provide services in full service brokerage offices and PNC declining opportunity. We relocated 8 branches traditional branches. during 2008.

The acquisition of National City on December 31, 2008 added In October 2008 we announced an exclusive agreement under 1,441 branches, including 61 branches that we committed to which we will provide banking services in Giant Food LLC divest, and 2,191 ATMs to our distribution network. Including supermarket locations across Virginia, Maryland, Delaware the impact of National City, our network grew to 2,589 and the District of Columbia. In 2009, we expect to open branches and 6,232 ATM machines, giving PNC one of the approximately 40 new in-store branches and install largest distribution networks among US banks. The approximately 180 ATMs. Additional locations are expected acquisition also added $53 billion of assets under management to open in subsequent years. to give the combined company $110 billion in assets under management. Total revenue for 2008 was $3.608 billion, a 1% increase compared with $3.580 billion for 2007. Net interest income of All other Retail Banking business segment disclosures in this $1.992 billion decreased $70 million, or 3%, compared with Item 7 exclude any impact of National City. 2007. This decline was primarily driven by a lower value attributed to deposits in the declining rate environment Retail Banking’s earnings were $429 million for 2008 partially offset by benefits from earlier acquisitions. compared with $876 million for 2007. The decline in earnings Noninterest income increased $98 million, or 6%, compared over the prior year was primarily driven by increases in the with 2007. This growth was attributed primarily to the provision for credit losses and noninterest expense. The 2008 following: revenue growth was negatively impacted by a lower interest • A gain of $95 million from the redemption of a credit attributed to deposits in the declining rate environment portion of our Visa Class B common shares related to and was therefore not reflective of the solid growth in Visa’s March 2008 initial public offering, customers and deposits. • The Mercantile, Yardville and Sterling acquisitions, • Increased volume-related consumer fees including Highlights of Retail Banking’s performance during 2008 debit card, credit card, and merchant revenue, and include the following: • Increased brokerage account activities. • Retail Banking expanded the number of customers it serves and grew checking relationships. Total These increases were partially offset by lower asset checking relationships increased by a net 160,000 management fees as a result of lower equity markets and by since December 31, 2007, which includes both the other business gains in the prior year. conversion of Yardville and Sterling accounts as well as the addition of new relationships through organic The Market Risk Management – Equity and Other Investment growth. Excluding relationships added from Risk section of this Financial Review includes further acquisitions, net new consumer and business information regarding Visa. checking relationships grew by 72,000 in 2008 compared with 32,000 a year earlier. The provision for credit losses for 2008 was $612 million • Average deposit balances increased $3.7 billion or compared to $138 million for 2007. Net charge-offs were 7% primarily as a result of strong money market $368 million for 2008 and $131 million in 2007. Asset quality deposit growth and the benefits of the acquisitions. continued to migrate at an accelerated pace in the very • Our investment in online banking capabilities challenging economic and credit environment. The increases continued to pay off. Since December 31, 2007, the in provision and net charge-offs were primarily a result of the percentage of consumer checking households using following: online bill payment increased from 33% to 41%. We • Downward credit migration of residential real estate continue to seek customer growth by expanding our development and related sectors, commercial real use of technology, such as the recent launch of our estate, and commercial and industrial loan portfolios, “Virtual Wallet” online banking product. Recently, and Virtual Wallet received a “Best of the Web” award • Increased levels of consumer and commercial charge- for 2008 from Online Banking Report. offs given the current credit environment.

48 Based upon the current environment and the acquisition of strength of increased small business loan demand National City, we believe the provision and nonperforming from existing customers and the acquisition of new assets will continue to increase in 2009 versus 2008 levels. relationships through our sales efforts was also a factor in the increase. At December 31, 2008, Noninterest expense for 2008 totaled $2.284 billion, an commercial and commercial real estate loans totaled increase of $239 million compared with 2007. Approximately $14.6 billion. This portfolio included $3.2 billion of 76% of this increase was attributable to acquisitions and commercial real estate loans, of which approximately continued investments in the business such as the branch $2.4 billion were related to our expansion from network and innovation. earlier acquisitions into the greater Maryland and Washington, DC markets. Approximately $.4 billion Full-time employees at December 31, 2008 totaled 11,481, an of the commercial real estate loans were in increase of 459 over the prior year. Part-time employees have residential real estate development. increased by 65 since December 31, 2007. The increase in • Average home equity loans grew $469 million, or full-time and part-time employees was primarily the result of 3%, compared with 2007 primarily due to the Yardville and Sterling acquisitions. acquisitions. Our home equity loan portfolio is relationship based, with 93% of the portfolio Growing core checking deposits as a lower-cost funding attributable to borrowers in our primary geographic source and as the cornerstone product to build customer footprint. We monitor this portfolio closely and the relationships is the primary objective of our deposit strategy. nonperforming assets and charge-offs that we have Furthermore, core checking accounts are critical to our experienced are within our expectations given current strategy of expanding our payments business. Average total market conditions. deposits increased $3.7 billion, or 7%, compared with 2007. • Average education loans grew $1.9 billion compared • Average money market deposits increased $2.9 with 2007. The increase was primarily the result of billion, and average certificates of deposits declined the transfer of approximately $1.8 billion of $.2 billion. Money market deposits experienced core education loans previously held for sale to the loan growth and both deposit categories benefited from portfolio during the first quarter of 2008. The Loans the acquisitions. The decline in certificates of Held For Sale portion of the Consolidated Balance deposits was a result of a focus on relationship Sheet Review section of this Financial Review customers rather than pursuing higher-rate single includes additional information related to this service customers. The deposit strategy of Retail transfer. Banking is to remain disciplined on pricing, target • Average residential mortgage loans increased $370 specific products and markets for growth, and focus million primarily due to the addition of loans from on the retention and growth of balances for acquisitions. relationship customers. • Average demand deposit growth of $1.1 billion, or Assets under management of $57 billion at December 31, 5%, was primarily driven by acquisitions as organic 2008 decreased $12 billion compared with the balance at growth was impacted by current economic December 31, 2007. The decline in assets under management conditions, such as lower average balances per was primarily due to comparatively lower equity markets account. partially offset by the Sterling acquisition and positive net inflows. New business sales efforts and new client acquisition Currently, we are focused on a relationship-based lending and growth were ahead of our expectations. strategy that targets specific customer sectors (homeowners, students, small businesses and auto dealerships) while seeking Nondiscretionary assets under administration of $87 billion at a moderate risk profile for the loans that we originate. December 31, 2008 decreased $25 billion compared with the • Average commercial and commercial real estate balance at December 31, 2007. This decline was primarily loans grew $2.1 billion, or 17%, compared with driven by comparatively lower equity markets and net 2007. The increase was primarily attributable to outflows resulting from the reduction in several significant acquisitions. Organic loan growth reflecting the relationships.

49 (a) Information for all periods presented excludes the impact of National City, which CORPORATE &INSTITUTIONAL BANKING (a) PNC acquired on December 31, 2008. (b) Includes lease financing. Year ended December 31 (c) Represents consolidated PNC amounts. Dollars in millions except as noted 2008 2007 (d) Includes valuations on commercial mortgage loans held for sale and related INCOME STATEMENT commitments, derivative valuations, origination fees, gains on sale of loans held for Net interest income $1,037 $818 sale and net interest income on loans held for sale. Noninterest income (e) Includes net interest income and noninterest income from loan servicing and Corporate service fees 545 564 ancillary services. (f) At December 31. Other (51) 156 (g) Includes nonperforming loans of $747 million at December 31, 2008 and $222 Noninterest income 494 720 million at December 31, 2007. Total revenue 1,531 1,538 Provision for credit losses 366 125 Corporate & Institutional Banking earned $225 million in Noninterest expense 882 818 2008 compared with $432 million in 2007. The 48% decline Pretax earnings 283 595 in earnings over 2007 was primarily driven by an increase in Income taxes 58 163 the provision for credit losses and by higher valuation losses Earnings $225 $432 on commercial mortgage loans held for sale, net of hedges. • Net interest income grew $219 million, or 27%, in AVERAGE BALANCE SHEET Loans 2008 compared with 2007. The increase over the Corporate (b) $12,485 $9,930 prior year was primarily a result of an increase in Commercial real estate 5,631 4,408 commercial mortgage loans held for sale, organic Commercial – real estate related 3,022 2,390 loan growth and acquisitions. Asset-based lending 5,274 4,595 • Corporate service fees decreased $19 million Total loans (b) 26,412 21,323 compared with 2007 to $545 million. The fourth 2,247 Goodwill and other intangible assets 1,919 quarter of 2008 included a $35 million impairment Loans held for sale 2,053 1,319 Other assets 6,282 4,491 charge on commercial mortgage servicing rights due to the effect of lower interest rates. Increases in Total assets $36,994 $29,052 treasury management, structured finance and Deposits syndication fees more than offset declines in Noninterest-bearing demand $7,598 $7,301 Money market 5,216 4,784 commercial mortgage servicing fees, net of Other 2,286 1,325 amortization, and merger and acquisition advisory Total deposits 15,100 13,410 fees. Other liabilities 5,479 3,347 • Other noninterest income was negative $51 million Capital 2,616 2,152 for 2008 compared with income of $156 million in Total funds $23,195 $18,909 2007. Losses of $197 million on commercial PERFORMANCE RATIOS mortgage loans held for sale, net of hedges, were Return on average capital 9% 20% included in other noninterest income for 2008 Noninterest income to total revenue 32 47 compared with gains of $3 million in 2007. These Efficiency 58 53 non-cash valuation losses reflected illiquid market COMMERCIAL MORTGAGE SERVICING conditions which began in the latter part of 2007. PORTFOLIO (in billions) • PNC adopted SFAS 159 beginning January 1, 2008 Beginning of period $243 $200 Acquisitions/additions 31 88 and elected to account for its loans held for sale and Repayments/transfers (25) (45) intended for securitization at fair value. We stopped End of period $249 $243 originating these loans during the first quarter of 2008. We intend to continue pursuing opportunities OTHER INFORMATION Consolidated revenue from (c): to reduce our loans held for sale position at Treasury management $545 $476 appropriate prices. We sold and/or securitized $.6 Capital markets $336 $290 billion of commercial mortgage loans held for sale Commercial mortgage loan sales and carried at fair value in 2008 reducing these fair value valuations (d) $(115) $19 assets to $1.4 billion at December 31, 2008. Commercial mortgage loan servicing (e) 180 233 • The provision for credit losses was $366 million in Commercial mortgage banking activities $65 $252 2008 compared with $125 million in 2007. The Total loans (f) $28,996 $23,861 increase in the provision was primarily due to credit Nonperforming assets (f) (g) $749 $243 Net charge-offs $168 $70 quality migration mainly related to residential real Full-time employees (f) 2,294 2,290 estate development and related sectors along with Net carrying amount of commercial mortgage growth in total credit exposure. Nonperforming servicing rights (f) $654 $694

50 assets increased $506 million in the comparison. The • Average deposit balances increased $1.7 billion, or largest component of the increase was in commercial 13%, compared with 2007. The increase resulted real estate and commercial real estate related loans. primarily from higher time deposits and the impact of Based upon the current environment and the acquisitions. acquisition of National City, we believe the provision • The commercial mortgage servicing portfolio was will continue to increase in 2009 versus 2008 levels. $249 billion at December 31, 2008, an increase of $6 • Noninterest expense increased $64 million, or 8%, billion from December 31, 2007. Servicing portfolio compared with 2007. The increase was primarily due additions were modest during 2008 due to the to the impact of the 2007 ARCS Commercial declining volumes in the commercial mortgage Mortgage and Mercantile acquisitions, expenses securitization market. associated with revenue-related activities, growth • Average other assets and other liabilities increased initiatives mainly in treasury management, higher $1.8 billion and $2.1 billion, respectively. These passive losses associated with low income housing increases were due to customer driven trading and tax credit investments, and write-downs of other real related hedging transactions. In addition, an increase estate owned. in customer driven money management activities • Average loan balances increased $5.1 billion, or contributed to the higher other liabilities balance. 24%, compared with 2007. The increase in corporate and commercial real estate loans resulted from higher See the additional revenue discussion regarding treasury utilization of credit facilities, organic growth from management, capital markets-related products and services, new and existing clients, and the impact of the and commercial mortgage banking activities on pages 29 and Mercantile and Yardville acquisitions. 30.

51 BLACKROCK As further described in PNC’s Current Report on Form 8-K filed December 30, 2008, PNC entered into an Exchange Our BlackRock business segment earned $207 million in 2008 Agreement with BlackRock on December 26, 2008. The and $253 million in 2007. These results reflect our transactions contemplated by this agreement will restructure approximately 33% share of BlackRock’s reported GAAP PNC’s ownership of BlackRock equity without altering, to earnings and the additional income taxes on these earnings any meaningful extent, PNC’s economic interest in incurred by PNC. BlackRock. PNC will continue to be subject to the limitations on its voting rights in its existing agreements with BlackRock. PNC’s investment in BlackRock was $4.2 billion at These transactions will also allow PNC to reduce its net December 31, 2008 and $4.1 billion at December 31, 2007. income volatility associated with the quarterly The book value per share was $98.32 at December 31, 2008. marking-to-market of obligations related to PNC’s delivery of BlackRock stock under the BlackRock LTIP. BLACKROCK LTIP PROGRAMS AND EXCHANGE AGREEMENTS BlackRock adopted the 2002 LTIP program to help attract and Also on December 26, 2008, BlackRock entered into an retain qualified professionals. At that time, PNC agreed to Exchange Agreement with Merrill Lynch in anticipation of the transfer up to four million of the shares of BlackRock consummation of the merger of Bank of America Corporation common stock then held by us to help fund the 2002 LTIP and and Merrill Lynch which was completed on January 1, 2009. future programs approved by BlackRock’s board of directors, The PNC and Merrill Lynch Exchange Agreements subject to certain conditions and limitations. Prior to 2006, restructured PNC’s and Merrill Lynch’s respective ownership BlackRock granted awards of approximately $233 million of BlackRock common and preferred equity. The exchange under the 2002 LTIP program, of which approximately $208 was completed on February 27, 2009. million were paid on January 30, 2007. The award payments were funded by 17% in cash from BlackRock and PNC will continue to account for its investment in BlackRock approximately one million shares of BlackRock common under the equity method of accounting, with its share of stock transferred by PNC and distributed to LTIP participants. BlackRock’s earnings reduced from approximately 33% to We recognized a pretax gain of $82 million in the first quarter 31%, solely as a result of the exchange of 2.9 million of its of 2007 from the transfer of BlackRock shares. The gain was shares of BlackRock common stock for new BlackRock Series included in other noninterest income and reflected the excess C Preferred Stock. The Series C Preferred Stock will not be of market value over book value of the one million shares taken into consideration in determining PNC’s share of transferred in January 2007. Additional BlackRock shares BlackRock earnings under the equity method. PNC’s were distributed to LTIP participants during the first quarter of percentage ownership of BlackRock common stock is 2008, resulting in a $3 million pretax gain in other noninterest expected to increase from approximately 36.5% to 46.5%. The income, and during January 2009, resulting in a $1 million increase will result from a substantial exchange of Merrill pretax gain. Lynch’s BlackRock common stock for BlackRock preferred stock. As a result of the BlackRock preferred stock currently BlackRock granted awards in 2007 under an additional LTIP held by Merrill Lynch and the new BlackRock preferred stock program, all of which are subject to achieving earnings being issued to Merrill Lynch and PNC under the Exchange performance goals prior to the vesting date of September 29, Agreements, PNC’s share of BlackRock common stock has 2011. Of the shares of BlackRock common stock that we have been, and will continue to be, higher than its overall share of agreed to transfer to fund their LTIP programs, approximately BlackRock’s equity and earnings. 1.6 million shares have been committed to fund the awards vesting in 2011 and the amount remaining would then be On February 27, 2009, PNC’s obligation to deliver BlackRock available for future awards. common shares was replaced with an obligation to deliver shares of BlackRock’s new Series C Preferred Stock. PNC PNC’s noninterest income for 2008 included a $243 million will account for these preferred shares at fair value as pretax gain related to our commitment to fund additional permitted under SFAS 159, which will offset the impact of BlackRock LTIP programs. This gain represented the marking-to-market the liability to deliver these shares to mark-to-market adjustment related to our remaining BlackRock. BlackRock LTIP common shares obligation as of December 31, 2008 and resulted from the decrease in the The transactions related to the Exchange Agreements will not market value of BlackRock common shares for 2008. PNC’s affect our right to receive dividends declared by BlackRock. noninterest income for 2007 included a pretax charge of $209 million for an increase in the market value of BlackRock common shares for that period.

52 QUELLOS TRANSACTION available to satisfy certain indemnification obligations of On October 1, 2007, BlackRock acquired the fund of funds Quellos under the asset purchase agreement. In April 2008, business of Quellos Group, LLC (“Quellos”). The combined 280,519 common stock shares were released to Quellos in fund of funds platform operates under the name BlackRock accordance with the Quellos asset purchase agreement, which Alternative Advisors and is one of the largest fund of funds resulted in an adjustment to the recognized purchase price. In platforms in the world. In connection with the acquisition, addition, Quellos may be entitled to receive two contingent BlackRock paid $562 million in cash to Quellos and placed payments upon achieving certain investment advisory base 1.2 million shares of BlackRock common stock into an escrow and performance fee measures through December 31, 2010, account. The shares of BlackRock common stock will be held totaling up to an additional $969 million in a combination of in the escrow account for up to three years and will be cash and stock.

53 GLOBAL INVESTMENT SERVICING Highlights of Global Investment Servicing’s performance for 2008 included: Year ended December 31 Dollars in millions except as noted 2008 2007 • Initiatives in the offshore arena resulted in a 13% INCOME STATEMENT increase in offshore servicing revenue. This included Servicing revenue (a) $947 $863 the start up of a new servicing location in Poland Operating expense (a) 728 637 which employed 69 individuals at year end. Assets Operating income 219 226 serviced, however, decreased by 38% as a direct result of the unsettled global equity markets and the Debt financing 34 38 Nonoperating income (b) 3 6 resultant high redemption activity in the latter part of the year. Pretax earnings 188 194 • Subaccounting shareholder accounts rose by Income taxes 66 66 5 million, or 9%, to 58 million, as existing clients Earnings $122 $128 continued to convert additional fund families to this PERIOD-END BALANCE SHEET platform. Global Investment Servicing remains a Goodwill and other intangible assets $1,301 $1,315 leading provider of subaccounting services. A Other assets 3,977 1,161 prominent new client was won during 2008 due to Total assets $5,278 $2,476 the combined subaccounting services and wealth Debt financing $850 $989 reporting capabilities that Global Investment Other liabilities 3,737 865 Servicing can now provide as a result of its Shareholder’s equity 691 622 acquisition of Albridge Solutions in December 2007. Total funds $5,278 $2,476 • Total accounting/administration funds serviced PERFORMANCE RATIOS increased 7% over the prior year. However, assets Return on average equity 18% 23% serviced decreased 15% due to declines in asset Operating margin (c) 23 26 values and fund outflows resulting from market SERVICING STATISTICS conditions, primarily in the fourth quarter of 2008. (at December 31) Accounting/administration net fund assets Servicing revenue for 2008 reached $947 million, an increase (in billions) (d) of $84 million, or 10%, over 2007. This increase resulted Domestic $764 $869 primarily from the acquisitions of Albridge Solutions and Offshore 75 121 Coates Analytics, LP in December 2007, growth in offshore Total $839 $990 operations, and increased securities lending activities afforded Asset type (in billions) by the volatility in the markets. Money market $431 $373 Equity 227 390 Operating expense increased $91 million, or 14%, to $728 Fixed income 103 123 million, in 2008 compared with 2007. Investments in Other 78 104 technology, a larger employee base to support business Total $839 $990 growth, and costs related to the acquisitions made in Custody fund assets (in billions) $379 $500 December 2007 drove the higher expense level. Shareholder accounts (in millions) Transfer agency 14 19 Debt financing costs and nonoperating income were both Subaccounting 58 53 lower than prior year levels due to the much lower interest rate Total 72 72 environment and principal payments on debt during the year. OTHER INFORMATION Full-time employees (at December 31) 4,934 4,784 Global Investment Servicing’s balance sheet was also (a) Certain out-of-pocket expense items which are then client billable are included in impacted by the market turmoil at year end as clients chose to both servicing revenue and operating expense above, but offset each other entirely leave cash balances uninvested. and therefore have no effect on operating income. Distribution revenue and expenses which relate to 12b-1 fees that are received from certain fund clients for payment of marketing, sales and service expenses also entirely offset each other, but are netted Total assets serviced by Global Investment Servicing totaled for presentation purposes above. $2.0 trillion at December 31, 2008 compared with $2.5 trillion (b) Net of nonoperating expense. at December 31, 2007. The decline in assets serviced was a (c) Total operating income divided by total servicing revenue. (d) Includes alternative investment net assets serviced. direct result of global market declines.

Global Investment Servicing earned $122 million for 2008 and $128 million for 2007. Results for 2008 were negatively impacted by declines in asset values and fund redemptions as a result of severe deterioration of the financial markets during the fourth quarter.

54 RITICAL CCOUNTING The following sections of this Report provide further C A information on this type of activity: ESTIMATES AND JUDGMENTS • Fair Value Measurements and Fair Value Option included within this Item 7, and Our consolidated financial statements are prepared by • Note 8 Fair Value included in Notes to Consolidated applying certain accounting policies. Note 1 Accounting Financial Statements in Item 8 of this Report. Policies in the Notes To Consolidated Financial Statements in Item 8 of this Report describes the most significant accounting Allowances For Loan And Lease Losses And Unfunded policies that we use. Certain of these policies require us to Loan Commitments And Letters Of Credit make estimates and strategic or economic assumptions that We maintain allowances for loan and lease losses and may prove inaccurate or be subject to variations that may unfunded loan commitments and letters of credit at levels that significantly affect our reported results and financial position we believe to be adequate to absorb estimated probable credit for the period or in future periods. losses inherent in the loan portfolio. We determine the adequacy of the allowances based on periodic evaluations of Fair Value Measurements the loan and lease portfolios and other relevant factors. We must use estimates, assumptions, and judgments when However, this evaluation is inherently subjective as it requires assets and liabilities are required to be recorded at, or adjusted material estimates, all of which may be susceptible to to reflect, fair value. This includes the initial measurement at significant change, including, among others: fair value of the assets acquired and liabilities assumed in • Probability of default, acquisitions qualifying as business combinations under SFAS • Loss given default, 141 or SFAS 141(R), “Business Combinations.” The valuation • Exposure at date of default, of both financial and nonfinancial assets and liabilities in these • Amounts and timing of expected future cash flows on transactions require numerous assumptions and estimates and impaired loans, the use of third-party sources including appraisers and • Value of collateral, valuation specialists. • Historical loss exposure, and • Amounts for changes in economic conditions that Assets and liabilities carried at fair value inherently result in a may not be reflected in historical results. higher degree of financial statement volatility. Assets and liabilities measured at fair value on a recurring basis, In determining the adequacy of the allowance for loan and including those elected under SFAS 159, include available for lease losses, we make specific allocations to impaired loans, sale and trading securities, financial derivatives, certain allocations to pools of watchlist and non-watchlist loans, and commercial and residential mortgage loans held for sale, allocations to consumer and residential mortgage loans. We customer resale agreements, private equity investments, and also allocate reserves to provide coverage for probable losses residential mortgage servicing rights. Fair values and the not covered in specific, pool and consumer reserve information used to record valuation adjustments for certain methodologies related to qualitative factors. While allocations assets and liabilities are based on either quoted market prices are made to specific loans and pools of loans, the total reserve or are provided by other independent third-party sources, is available for all credit losses. when available. When such third-party information is not available, we estimate fair value primarily by using cash flow Commercial lending is the largest category of credits and is and other financial modeling techniques. Changes in the most sensitive to changes in assumptions and judgments underlying factors, assumptions, or estimates in any of these underlying the determination of the allowance for loan and areas could materially impact our future financial condition lease losses. We have allocated approximately $2.6 billion, or and results of operations. 67%, of the allowance for loan and lease losses at December 31, 2008 to the commercial lending category. Effective January 1, 2008, PNC adopted SFAS 157. SFAS 157 Consumer and residential mortgage loan allocations are made defines fair value as the price that would be received to sell a at a total portfolio level based on historical loss experience financial asset or paid to transfer a financial liability in an adjusted for portfolio activity. Approximately $1.2 billion, or orderly transaction between market participants at the 32%, of the allowance for loan and lease losses at measurement date. SFAS 157 established a three level December 31, 2008 have been allocated to these consumer hierarchy for disclosure of assets and liabilities recorded at lending categories. The remainder of the allowance is fair value. The classification of assets and liabilities within the allocated to the other loans category. hierarchy is based on whether the inputs to the valuation methodology used in the measurement are observable or unobservable.

55 To the extent actual outcomes differ from our estimates, future earnings volatility due to increases or decreases in the additional provision for credit losses may be required that accretable yield (i.e., difference between the undiscounted would reduce future earnings. See the following for additional expected cash flows and the fair value) recognized on the loan information: or the requirement to record a provision for credit losses if the • Allowances For Loan And Lease Losses And decline in expected cash flows is attributable to a decline in Unfunded Loan Commitments And Letters Of Credit credit quality. in the Credit Risk Management section of this Item 7 (which includes an illustration of the estimated Goodwill impact on the aggregate of the allowance for loan and Goodwill arising from business acquisitions represents the lease losses and allowance for unfunded loan value attributable to unidentifiable intangible elements in the commitments and letters of credit assuming we business acquired. Most of our goodwill relates to value increased pool reserve loss rates for certain loan inherent in the Retail Banking, Corporate & Institutional categories), and Banking and Global Investment Servicing businesses. The • Note 5 Asset Quality in the Notes To Consolidated value of this goodwill is dependent upon our ability to provide Financial Statements in Item 8 of this Report, and quality, cost effective services in the face of competition from Allocation Of Allowance For Loan And Lease Losses other market participants on a national and international basis. in the Statistical Information (Unaudited) section. We also rely upon continuing investments in processing systems, the development of value-added service features, and Estimated Cash Flows on Impaired Loans the ease of access by customers to our services. AICPA Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (SOP 03-3) As such, the value of goodwill is ultimately supported by provides guidance for accounting for certain loans that have earnings, which is driven by transaction volume and, for experienced a deterioration of credit quality at the time of certain businesses, the market value of assets under acquisition for which it is probable that the investor will be administration or for which processing services are provided. unable to collect all contractually required payments. The Lower earnings resulting from a lack of growth or our application of this guidance requires a two-step process: the inability to deliver cost-effective services over sustained determination of which loans qualify due to credit quality periods can lead to impairment of goodwill, which could deterioration and the determination of fair value and result in a current period charge to earnings. At least annually, undiscounted expected cash flows for the loans that are in the management reviews the current operating environment and scope of SOP 03-3. SOP 03-3 prohibits “carrying over” or strategic direction of each reporting unit taking into creation of an allowance for loan losses in the initial consideration any events or changes in circumstances that may accounting of all loans in scope. have an effect on the unit. A reporting unit is defined as an operating segment or one level below an operating segment. In our assessment of credit quality deterioration, we must This input is then used to calculate the fair value of the make numerous assumptions, interpretations and judgments, reporting unit, including goodwill, which is compared to its based on internal and third-party credit quality information carrying value. If the fair value of the reporting unit exceeds and ultimately determine whether we believe it is probable its carrying amount, then the goodwill of that reporting unit is that we will not be able to collect all amounts due, including not considered impaired. During the fourth quarter 2008, and both principal and interest, according to the contractual terms the first quarter of 2009, PNC considered whether the decline of the loans. This is a point in time assessment and inherently in the fair value of our market capitalization due to market subjective due to the nature of the available information and conditions is an indicator of declines in the fair value of the judgment involved. reporting units. Although the fair values of the reporting units decreased, their estimated fair values are still considered to be For those loans that qualify under SOP 03-3, the valuation in excess of their respective carrying values. Based on the process involves estimating the fair value of each loan at results of our analysis, there have been no impairment charges acquisition and determining the undiscounted expected cash related to goodwill. See Note 9 Goodwill and Other Intangible flows to be realized from the loan both at acquisition and Assets in the Notes To Consolidated Financial Statements in periodically throughout the life of the loan. Measurement of Item 8 of this Report for additional information. the fair value of the loan is based on the provisions of SFAS 157 as discussed above. Lease Residuals We provide financing for various types of equipment, aircraft, The measurement of undiscounted expected cash flows energy and power systems, and rolling stock through a variety involves assumptions and judgments as to credit risk, interest of lease arrangements. Direct financing leases are carried at rate risk, prepayment risk, default rates, loss severity, payment the sum of lease payments and the estimated residual value of speeds and collateral values. All of these factors are inherently the leased property, less unearned income. Residual value subjective and can result in significant changes in the cash insurance or guarantees by governmental entities provide flow estimates over the life of the loan. Such changes increase support for a significant portion of the residual value. Residual

56 values are subject to judgments as to the value of the information, and maintain tax accruals consistent with our underlying equipment that can be affected by changes in evaluation of these relative risks and merits. The result of our economic and market conditions and the financial viability of evaluation and assessment is by its nature an estimate. We and the residual guarantors and insurers. To the extent not our subsidiaries are routinely subject to audit and challenges guaranteed or assumed by a third party, or otherwise insured from taxing authorities. In the event we resolve a challenge for against, we bear the risk of ownership of the leased assets. an amount different than amounts previously accrued, we will This includes the risk that the actual value of the leased assets account for the difference in the period in which we resolve at the end of the lease term will be less than the residual value, the matter. which could result in an impairment charge and reduce earnings in the future. Residual values are reviewed for ECENT CCOUNTING impairment on a quarterly basis. R A PRONOUNCEMENTS Revenue Recognition We derive net interest and noninterest income from various See Note 1 Accounting Policies in the Notes To Consolidated sources, including: Financial Statements in Item 8 of this Report for additional • Lending, information on the following recent accounting • Securities portfolio, pronouncements that are relevant to our business, including a • Asset management and fund servicing, description of each new pronouncement, the required date of • Customer deposits, adoption, our planned date of adoption, and the expected • Loan servicing, impact on our consolidated financial statements. • Brokerage services, • Merger and acquisition advisory services, The following were issued in 2008: • Sale of loans and securities, • FASB Staff Position No. (“FSP”) EITF 99-20-1, • Certain private equity activities, and “Amendments to the Impairment Guidance of EITF • Securities and derivatives trading activities including Issue No. 99-20” foreign exchange. • FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” We also earn fees and commissions from issuing loan • FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by commitments, standby letters of credit and financial Public Entities (Enterprises) about Transfers of guarantees, selling various insurance products, providing Financial Assets and Interests in Variable Interest treasury management services and participating in certain Entities” capital markets transactions. Revenue earned on interest- • FSP FAS 157-3, “Determining the Fair Value of a earning assets including the accretion of fair value Financial Asset When the Market for That Asset Is adjustments on discounts for purchased loans is recognized Not Active” based on the effective yield of the financial instrument. • FSP FAS 133-1 and FIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An The timing and amount of revenue that we recognize in any Amendment of FASB Statement No. 133 and FASB period is dependent on estimates, judgments, assumptions, and Interpretation No. 45; and Clarification of the interpretation of contractual terms. Changes in these factors Effective Date of FASB Statement No. 161” can have a significant impact on revenue recognized in any • FSP EITF 03-6-1, “Determining Whether period due to changes in products, market conditions or Instruments Granted in Share-Based Payment industry norms. Transactions Are Participating Securities” • FSP APB 14-1, “Accounting for Convertible Debt Income Taxes Instruments That May Be Settled in Cash Upon In the normal course of business, we and our subsidiaries enter Conversion (Including Partial Cash Settlement)” into transactions for which the tax treatment is unclear or • SFAS 163, “Accounting for Financial Guarantee subject to varying interpretations. In addition, filing Insurance Contracts an Interpretation of FASB requirements, methods of filing and the calculation of taxable Statement No. 60” income in various state and local jurisdictions are subject to • SFAS 162, “The Hierarchy of Generally Accepted differing interpretations. Accounting Principles” • FSP FAS 142-3, “Determination of the Useful Life of We evaluate and assess the relative risks and merits of the Intangible Assets” appropriate tax treatment of transactions, filing positions, • SFAS 161, “Disclosures about Derivative filing methods and taxable income calculations after Instruments and Hedging Activities” considering statutes, regulations, judicial precedent, and other • FSP FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions”

57 The following were issued in 2007: The table below reflects the estimated effects on pension • SFAS 141(R), “Business Combinations” expense of certain changes in annual assumptions, using 2009 • SFAS 160, “Accounting and Reporting of estimated expense as a baseline. Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51” Estimated Increase to 2009 • SEC Staff Accounting Bulletin No. 109 Pension Expense • FIN 46(R) 7, “Application of FASB Interpretation Change in Assumption (In millions) No. 46(R) to Investment Companies” .5% decrease in discount rate (a) • FSP FIN 48-1, “Definition of Settlement in FASB .5% decrease in expected long-term return Interpretation (“FIN”) No. 48” on assets $16 • SFAS 159 .5% increase in compensation rate $ 2 (a) De minimis. The following were issued in 2006 with an effective date in 2008: We currently estimate a pretax pension expense of $124 • SFAS 157 million in 2009 compared with a pretax benefit of $32 million • The Emerging Issues Task Force (“EITF”) of the in 2008. The 2009 values and sensitivities shown above FASB issued EITF Issue 06-4, “Accounting for include the qualified defined benefit plan maintained by Deferred Compensation and Postretirement Benefit National City that we merged into the PNC plan as of Aspects of Endorsement Split-Dollar Life Insurance December 31, 2008. The expected increase in pension cost is Arrangements” attributable not only to the National City acquisition, but also to the significant variance between 2008 actual investment STATUS OF DEFINED BENEFIT returns and long-term expected returns. ENSION LAN P P Our pension plan contribution requirements are not particularly sensitive to actuarial assumptions. Investment We have a noncontributory, qualified defined benefit pension performance has the most impact on contribution requirements plan (“plan” or “pension plan”) covering eligible employees. and will drive the amount of permitted contributions in future Benefits are derived from a cash balance formula based on years. Also, current law, including the provisions of the compensation levels, age and length of service. Pension Pension Protection Act of 2006, sets limits as to both contributions are based on an actuarially determined amount minimum and maximum contributions to the plan. We expect necessary to fund total benefits payable to plan participants. that the minimum required contributions under the law will be Consistent with our investment strategy, plan assets are zero for 2009. primarily invested in equity investments and fixed income instruments. Plan fiduciaries determine and review the plan’s We maintain other defined benefit plans that have a less investment policy. significant effect on financial results, including various nonqualified supplemental retirement plans for certain We calculate the expense associated with the pension plan in employees. See Note 15 Employee Benefit Plans in the Notes accordance with SFAS 87, “Employers’ Accounting for To Consolidated Financial Statements in Item 8 of this Report Pensions,” and we use assumptions and methods that are for additional information. compatible with the requirements of SFAS 87, including a policy of reflecting trust assets at their fair market value. On an annual basis, we review the actuarial assumptions related to RISK MANAGEMENT the pension plan, including the discount rate, the rate of compensation increase and the expected return on plan assets. We encounter risk as part of the normal course of our business and we design risk management processes to help manage The discount rate and compensation increase assumptions do these risks. This Risk Management section first provides an not significantly affect pension expense. However, the expected overview of the risk measurement, control strategies, and long-term return on assets assumption does significantly affect monitoring aspects of our corporate-level risk management pension expense. The expected long-term return on plan assets processes. Following that discussion is an analysis of the risk for determining net periodic pension cost for 2008 was 8.25%, management process for what we view as our primary areas of unchanged from 2007. Under current accounting rules, the risk: credit, operational, liquidity, and market. The discussion difference between expected long-term returns and actual of market risk is further subdivided into interest rate, trading, returns is accumulated and amortized to pension expense over and equity and other investment risk areas. Our use of future periods. Each one percentage point difference in actual financial derivatives as part of our overall asset and liability return compared with our expected return causes expense in risk management process is also addressed within the Risk subsequent years to change by up to $7 million as the impact is Management section of this Item 7. In appropriate places amortized into results of operations. within this section, historical performance is also addressed.

58 OVERVIEW capital framework is a measure of potential losses above and As a financial services organization, we take a certain amount beyond expected losses. Potential one year losses are of risk in every business decision. For example, every time we capitalized to a level commensurate with a financial institution open an account or approve a loan for a customer, process a with an A rating by the credit rating agencies. Economic payment, hire a new employee, or implement a new computer capital incorporates risk associated with potential credit losses system, we incur a certain amount of risk. As an organization, (Credit Risk), fluctuations of the estimated market value of we must balance revenue generation and profitability with the financial instruments (Market Risk), failure of people, risks associated with our business activities. Risk management processes or systems (Operational Risk), and income losses is not about eliminating risks, but about identifying and associated with declining volumes, margins and/or fees, and accepting risks and then effectively managing them so as to the fixed cost structure of the business (Business Risk). We optimize shareholder value. estimate credit and market risks at an exposure level while we estimate the remaining risk types at an institution or business The key to effective risk management is to be proactive in segment level. We routinely compare the output of our identifying, measuring, evaluating, and monitoring risk on an economic capital model with industry benchmarks. ongoing basis. Risk management practices support decision- making, improve the success rate for new initiatives, and Risk Control Strategies strengthen the market’s confidence in an organization. We centrally manage policy development and exception oversight through corporate-level risk management. Corporate We manage risk toward an overall moderate risk profile. The risk management is authorized to take action to either prevent current economic environment, combined with our acquisition or mitigate exceptions to policies and is responsible for of National City, has increased our risk profile above that monitoring compliance with risk management policies. The desired level. We remain committed to a moderate risk profile Corporate Audit function performs an independent assessment and are working to return to that level of overall risk. of the internal control environment. Corporate Audit plays a critical role in risk management, testing the operation of the CORPORATE-LEVEL RISK MANAGEMENT OVERVIEW internal control system and reporting findings to management We support risk management through a governance structure and to the Audit Committee of the Board. involving the Board, senior management and a corporate risk management organization. Risk Monitoring Corporate risk management reports on a regular basis to our Although our Board as a whole is responsible generally for Board regarding the enterprise risk profile of the Corporation. oversight of risk management, committees of the Board These reports aggregate and present the level of risk by type provide oversight to specific areas of risk with respect to the of risk and communicate significant risk issues, including level of risk and risk management structure. performance relative to risk tolerance limits. Both the Board and the EC provide guidance on actions to address key risk We use management level risk committees to help ensure that issues as identified in these reports. business decisions are executed within our desired risk profile. The Executive Committee (“EC”), consisting of senior CREDIT RISK MANAGEMENT management executives, provides oversight for the Credit risk represents the possibility that a customer, establishment and implementation of new comprehensive risk counterparty or issuer may not perform in accordance with management initiatives, reviews enterprise level risk profiles contractual terms. Credit risk is inherent in the financial and discusses key risk issues. services business and results from extending credit to customers, purchasing securities, and entering into financial The corporate risk management organization has the following derivative transactions and certain guarantee contracts. Credit key roles: risk is one of our most significant risks. • Facilitate the identification, assessment and monitoring of risk across PNC, Approved risk tolerances, in addition to credit policies and • Provide support and oversight to the businesses, and procedures, set portfolio objectives for the level of credit risk. • Identify and implement risk management best We have established guidelines for problem loans, acceptable practices, as appropriate. levels of total borrower exposure, and other credit measures. We seek to achieve our credit portfolio objectives by Risk Measurement maintaining a customer base that is diverse in borrower We conduct risk measurement activities specific to each area exposure and industry types. We use loan participations with of risk. The primary vehicle for aggregation of enterprise-wide third parties, loan sales and syndications, and the purchase of risk is a comprehensive risk management methodology that is credit derivatives to reduce risk concentrations. based on economic capital. This primary risk aggregation measure is supplemented with secondary measures of risk to The credit granting businesses maintain direct responsibility arrive at an estimate of enterprise-wide risk. The economic for monitoring credit risk within PNC. The Corporate Credit

59 Policy area provides independent oversight to the (a) Amounts at December 31, 2008 include $722 million of nonperforming measurement, monitoring and reporting of our credit risk and assets related to National City. Nonperforming assets of National City are comprised of $250 million of nonperforming loans, including $154 reports to the Chief Administrative Officer. Corporate Audit million related to commercial lending and $96 million related to also provides an independent assessment of the effectiveness consumer lending, and $472 million of foreclosed and other assets. of the credit risk management process. (b) Includes loans related to customers in the real estate and construction industries. Nonperforming, Past Due And Potential Problem Assets (c) We have adjusted the December 31, 2007 amounts to be consistent with the current methodology for recognizing nonaccrual residential mortgage See the Nonperforming Assets And Related Information table loans serviced under master servicing arrangements. in the Statistical Information (Unaudited) section of Item 8 of (d) Excludes equity management assets carried at estimated fair value of $42 this Report and included here by reference for details of the million at December 31, 2008 and $4 million at December 31, 2007. types of nonperforming assets that we held at December 31 of (e) Excludes loans held for sale carried at lower of cost or market value of each of the past five years. In addition, certain performing $78 million at December 31, 2008 (amount includes troubled debt restructured assets of $5 million) and $25 million at December 31, 2007. assets have interest payments that are past due or have the potential for future repayment problems. Nonperforming loans at December 31, 2008 included $537 million related to the distressed loan portfolio, of which $103 Credit quality migration reflected a rapidly weakening million were attributable to National City. Details of these economy during 2008, but remained manageable as we were nonperforming loans follow. able to maintain a strong capital position and generate positive operating leverage. We remained focused on returning to a Nonperforming Loans - Distressed Loan Portfolio moderate risk profile.

In millions Dec. 31, 2008 Nonperforming Assets by Type Commercial real estate – real estate projects $445 Dec. 31 Dec. 31 Consumer – home equity 29 In millions 2008 (a) 2007 Residential real estate Nonaccrual loans Residential mortgage 50 Commercial Residential construction 13 Retail/wholesale $88$39 Total residential real estate 63 Manufacturing 141 35 Other service providers 114 48 Total nonperforming loans – distressed portfolio $537 Real estate related (b) 151 45 Financial services 23 15 Change In Nonperforming Assets Health care 37 4 Other 22 7 In millions 2008 2007 Total commercial 576 193 January 1 $ 495 $ 184 Commercial real estate National City acquisition 722 Real estate projects 659 184 Other acquisitions (a) 9 37 Commercial mortgage 107 28 Transferred from accrual 1,981 653 Total commercial real estate 766 212 Charge-offs and valuation adjustments (491) (167) Equipment lease financing 97 3 Principal activity including payoffs (381) (179) TOTAL COMMERCIAL LENDING 1,439 408 Returned to performing (127) (23) Consumer Asset sales (43) (10) Home equity 66 16 Other 4 1 December 31 $2,165 $ 495 Total consumer 70 17 (a) Sterling in 2008; Mercantile and Yardville in 2007. Residential real estate Total nonperforming assets at December 31, 2008 increased Residential mortgage (c) 139 26 Residential construction 14 1 $1.670 billion, to $2.165 billion, from the balance at Total residential real estate (c) 153 27 December 31, 2007. Our nonperforming assets represented .74% of total assets at December 31, 2008 compared with TOTAL CONSUMER LENDING (c) 223 44 .36% at December 31, 2007. The increase in nonperforming Total nonaccrual loans (c) 1,662 452 Restructured loans 2 assets reflected higher nonaccrual residential real estate Total nonperforming loans (c) 1,662 454 development loans and loans in related sectors, and the Foreclosed and other assets addition of $722 million of nonperforming assets related to Commercial lending 34 23 National City. Consumer 11 8 Residential real estate 458 10 Nonperforming assets added with the National City Total foreclosed and other assets 503 41 acquisition exclude those loans that we impaired in Total nonperforming assets (c)(d)(e) $2,165 $495 accordance with SOP 03-3.

60 We recorded such loans at estimated fair value and considered estimates of the probability of the ultimate funding and losses them to be performing, even if contractually past due (or if we related to those credit exposures. This methodology is similar do not expect to receive payment in full based on the original to the one we use for determining the adequacy of our contractual terms), since certain purchase accounting allowance for loan and lease losses. adjustments will be accreted to interest income over time. The accretion will represent the discount associated with the We refer you to Note 5 Asset Quality in the Notes To difference between the expected cash flows and estimated fair Consolidated Financial Statements in Item 8 of this Report value of the loans. This accounting treatment resulted in the regarding changes in the allowance for loan and lease losses return to performing status of $3.2 billion of loans previously and in the allowance for unfunded loan commitments and classified as nonperforming by National City. The purchase letters of credit. Also see the Allocation Of Allowance For accounting adjustments were estimated as of December 31, Loan And Lease Losses table in the Statistical Information 2008 and such estimates may be refined during the first (Unaudited) section of Item 8 of this Report for additional quarter of 2009. information included herein by reference.

At December 31, 2008, our largest nonperforming asset was We establish specific allowances for loans considered approximately $36 million and our average nonperforming impaired using a method prescribed by SFAS 114, loan associated with commercial lending was less than $1 “Accounting by Creditors for Impairment of a Loan.” All million. impaired loans except leases and large groups of smaller- balance homogeneous loans which may include but are not The amount of nonperforming loans that was current as to limited to credit card, residential mortgage, and consumer principal and interest was $555 million at December 31, 2008 installment loans are subject to SFAS 114 analysis. Specific and $178 million at December 31, 2007. allowances for individual loans over a set dollar threshold are determined by our Special Asset Committee based on an analysis of the present value of expected future cash flows Accruing Loans Past Due 90 Days Or More- Summary from the loans discounted at their effective interest rate, observable market price, or the fair value of the underlying Percent of Total Amount Outstandings collateral. We establish specific allowance on all other Dec. 31 Dec. 31 Dec. 31 Dec. 31 impaired loans based on the loss given default credit risk Dollars in millions 2008 (a) 2007 2008 (a) 2007 rating. Commercial $97$14 .14% .05% Commercial real estate 723 18 2.81 .20 Allocations to non-impaired commercial and commercial real Equipment lease financing 2 .03 Consumer 419 49 .80 .27 estate loans (pool reserve allocations) are assigned to pools of Residential real estate 2,011 43 9.32 .45 loans as defined by our business structure and are based on Other 7 12 .37 2.91 internal probability of default and loss given default credit risk Total $3,259 $136 1.86% .20% ratings. (a) Amounts include the impact of National City. Key elements of the pool reserve methodology include: • Probability of default (“PD”), which is primarily Loans that are not included in nonperforming or past due based on historical default analyses and is derived categories but cause us to be uncertain about the borrower’s from the borrower’s internal PD credit risk rating; ability to comply with existing repayment terms over the next • Exposure at default (“EAD”), which is derived from six months totaled $745 million at December 31, 2008, historical default data; and compared with $134 million at December 31, 2007. • Loss given default (“LGD”), which is based on historical loss data, collateral value and other Allowances For Loan And Lease Losses And Unfunded structural factors that may affect our ultimate ability Loan Commitments And Letters Of Credit to collect on the loan and is derived from the loan’s We maintain an allowance for loan and lease losses to absorb internal LGD credit risk rating. losses from the loan portfolio. We determine the allowance based on quarterly assessments of the probable estimated Our pool reserve methodology is sensitive to changes in key losses inherent in the loan portfolio. While we make risk parameters such as PDs, LGDs and EADs. In general, a allocations to specific loans and pools of loans, the total given change in any of the major risk parameters will have a reserve is available for all loan and lease losses. corresponding change in the pool reserve allocations for non-impaired commercial loans. Our commercial loans are the In addition to the allowance for loan and lease losses, we largest category of credits and are most sensitive to changes in maintain an allowance for unfunded loan commitments and the key risk parameters and pool reserve loss rates. To letters of credit. We report this allowance as a liability on our illustrate, if we increase the pool reserve loss rates by 5% for Consolidated Balance Sheet. We determine this amount using all categories of non-impaired commercial loans, then the

61 aggregate of the allowance for loan and lease losses and Charge-Offs And Recoveries allowance for unfunded loan commitments and letters of Percent of credit would increase by $128 million. Additionally, other Year ended December 31 Net Average factors such as the rate of migration in the severity of problem Dollars in millions Charge-offs Recoveries Charge-offs Loans loans will contribute to the final pool reserve allocations. 2008 Commercial $301 $53 $248 .80% We make consumer (including residential mortgage) loan Commercial real allocations at a total portfolio level by consumer product line estate 165 10 155 1.65 based on historical loss experience. We compute a four- Equipment lease quarter average loss rate from net charge-offs for the prior financing 3 1 2 .08 four quarters as a percentage of the average loans outstanding Consumer 143 15 128 .62 in those quarters. We apply this loss rate to loans outstanding Residential real at the end of the current period and make certain qualitative estate 6 6 .07 adjustments to determine the consumer loan allocation. Total $ 618 $ 79 $ 539 .74 The provision for credit losses totaled $1.517 billion for 2008 2007 compared with $315 million for 2007. Of the total 2008 Commercial $156 $30 $126 .49% provision, $990 million was recorded in the fourth quarter, Commercial real including $504 million of additional provision recorded at estate 16 1 15 .20 December 31, 2008 to conform the National City loan Consumer 73 14 59 .33 reserving methodology with ours. The differences in Total $ 245 $ 45 $ 200 .32 methodology include granularity of loss computations, statistical and quantitative factors rather than qualitative We establish reserves to provide coverage for probable losses assessment, and the extent of current appraisals and risk not considered in the specific, pool and consumer reserve assessments. methodologies, such as, but not limited to, the following: • industry concentrations and conditions, In addition to the impact of National City, the higher provision • credit quality trends, in 2008 compared with the prior year was driven by general • recent loss experience in particular sectors of the credit quality migration, including residential real estate portfolio, development and commercial real estate exposure, an increase • ability and depth of lending management, in net charge-offs, and growth in nonperforming loans. • changes in risk selection and underwriting standards, Growth in our total credit exposure also contributed to the and higher provision amounts in both comparisons. • timing of available information. In addition, the provision for credit losses for 2008 and the The amount of reserves for these qualitative factors is evaluation of the allowances for loan and lease losses and assigned to loan categories and to business segments primarily unfunded loan commitments and letters of credit as of based on the relative specific and pool allocation amounts. December 31, 2008 reflected loan and total credit exposure The amount of reserve allocated for qualitative factors growth, changes in loan portfolio composition, and other represented 1.76% of the total allowance and .04% of total changes in asset quality. The provision includes amounts for loans at December 31, 2008. probable losses on loans and credit exposure related to unfunded loan commitments and letters of credit. CREDIT DEFAULT SWAPS With a deteriorating economy, we expect credit migration will From a credit risk management perspective, we buy and sell continue throughout 2009 as credit quality improvements will credit loss protection via the use of credit derivatives. When lag any economic turnaround. we buy loss protection by purchasing a credit default swap (“CDS”), we pay a fee to the seller, or CDS counterparty, in The allowance as a percent of nonperforming loans was 236% return for the right to receive a payment if a specified credit and as a percent of total loans was 2.23% at December 31, event occurs for a particular obligor or reference entity. We 2008. These percentages excluding the impact of the National purchase CDSs to mitigate the risk of economic loss on a City acquisition were 95% and 1.77%, respectively. We portion of our loan exposures. provide a reconciliation of these percentages excluding the National City impact to the GAAP-basis percentages in the We also sell loss protection to mitigate the net premium cost Statistical Information (Unaudited) section in Item 8 of this and the impact of fair value accounting on the CDS in cases Report. The comparable percentages at December 31, 2007 where we buy protection to hedge the loan portfolio and for were 183% and 1.21%. We expect to continue to increase our trading purposes. These activities represent additional risk allowance as a percent of total loans as the market and our positions rather than hedges of risk. credit quality migration dictates.

62 We approve counterparty credit lines for all of our trading Our business resiliency program manages the organization’s activities, including CDSs. Counterparty credit lines are capabilities to provide services in the case of an event that approved based on a review of credit quality in accordance results in material disruption of business activities. with our traditional credit quality standards and credit policies. Prioritization of investments in people, processes, technology The credit risk of our counterparties is monitored in the and facilities is based on different types of events, business normal course of business. In addition, all counterparty credit risk and criticality. Comprehensive testing validates our lines are subject to collateral thresholds and exposures above resiliency capabilities on an ongoing basis, and an integrated these thresholds are secured. governance model is designed to help assure transparent management reporting. Credit default swaps are included in the Free-Standing Derivatives table in the Financial Derivatives section of this Insurance Risk Management discussion. Net gains from credit default As a component of our risk management practices, we swaps for proprietary trading positions, reflected in other purchase insurance designed to protect us against accidental noninterest income in our Consolidated Income Statement, loss or losses which, in the aggregate, may significantly affect totaled $45 million for 2008 and $38 million for 2007. personnel, property, financial objectives, or our ability to continue to meet our responsibilities to our various OPERATIONAL RISK MANAGEMENT stakeholder groups. Operational risk is defined as the risk of financial loss or other damage to us resulting from inadequate or failed internal PNC, through subsidiary companies, Alpine Indemnity processes or systems, human factors, or from external events. Limited and Advent Guaranty Corporation, provides insurance Operational risk may occur in any of our business activities coverage for its general liability, automobile liability, and manifests itself in various ways, including but not limited management liability, fidelity, employment practices liability, to the following: special crime, workers’ compensation, property and terrorism • Errors related to transaction processing and systems, programs. PNC’s risks associated with its participation as an • Breaches of the system of internal controls and insurer for these programs are mitigated through policy limits compliance requirements, and and annual aggregate limits. Risks in excess of Alpine and • Business interruptions and execution of unauthorized Advent policy limits and annual aggregates are mitigated transactions and fraud by employees or third parties. through the purchase of direct coverage provided by various insurers up to limits established by PNC’s Corporate Operational losses may arise from legal actions due to Insurance Committee. operating deficiencies or noncompliance with contracts, laws or regulations. LIQUIDITY RISK MANAGEMENT Liquidity risk is the risk of potential loss if we were unable to To monitor and control operational risk, we maintain a meet our funding requirements at a reasonable cost. We comprehensive framework including policies and a system of manage liquidity risk to help ensure that we can obtain cost- internal controls that is designed to manage risk and to effective funding to meet current and future obligations under provide management with timely and accurate information both normal “business as usual” and stressful circumstances. about the operations of PNC. Management at each business unit is primarily responsible for its operational risk Our largest source of liquidity on a consolidated basis is the management program, given that operational risk management deposit base that comes from our retail and corporate and is integral to direct business management and most easily institutional banking activities. Other borrowed funds come effected at the business unit level. Corporate Operational Risk from a diverse mix of short and long-term funding sources. Management oversees day-to-day operational risk Liquid assets and unused borrowing capacity from a number management activities. of sources are also available to maintain our liquidity position.

Technology Risk Liquid assets consist of short-term investments (federal funds The technology risk management program is a significant sold, resale agreements, trading securities, interest-earning component of the operational risk framework. We have an deposits with banks, and other short-term investments) and integrated security and technology risk management securities available for sale. At December 31, 2008, our liquid framework designed to help ensure a secure, sound, and assets totaled $59.6 billion, with $22.5 billion pledged as compliant infrastructure for information management. The collateral for borrowings, trust, and other commitments. technology risk management process is aligned with the strategic direction of the businesses and is integrated into the Bank Level Liquidity technology management culture, structure and practices. The PNC Bank, N.A. and National City Bank can borrow from the application of this framework across the enterprise helps to Federal Reserve Bank of Cleveland’s (“Federal Reserve support comprehensive and reliable internal controls. Bank”) discount window to meet short-term liquidity requirements. These borrowings are secured by securities and

63 commercial loans. PNC Bank, N.A. is also a member of the As of December 31, 2008, there were $3.1 billion of PNC Federal Home Loan Bank (“FHLB”)-Pittsburgh and as such Bank, N.A. and $4.8 billion of National City Bank short- and has access to advances from FHLB-Pittsburgh secured long-term debt issuances, including commercial paper, with generally by residential mortgage and other mortgage-related maturities of less than one year. loans. At December 31, 2008, we maintained significant unused borrowing capacity from the Federal Reserve Bank Parent Company Liquidity discount window and FHLB-Pittsburgh under current Our parent company’s routine funding needs consist primarily collateral requirements. In addition, National City Bank is a of dividends to PNC shareholders, share repurchases, debt member of FHLB – Cincinnati. service, the funding of non-bank affiliates, and acquisitions. Information regarding amounts pledged, for the ability to See the Funding and Capital Sources section of the borrow if necessary, and borrowings related to the Federal Consolidated Balance Sheet Review section of this Report Reserve Bank, FHLB – Pittsburgh and FHLB – Cincinnati are regarding certain restrictions on dividends and common share as follows: repurchases related to PNC’s participation in the US Dec. 31, Dec. 31, Treasury’s TARP Capital Purchase Program. In billions 2008 2007 Pledged to Federal Reserve Bank Parent company liquidity guidelines are designed to help Loans $32.9 $ 1.6 ensure that sufficient liquidity is available to meet these Securities $11.0 $18.8 requirements over the succeeding 12-month period. In Combined collateral value $35.4 $18.2 managing parent company liquidity we consider funding Pledged to FHLB-Pittsburgh sources, such as expected dividends to be received from our Loans $27.1 $33.5 subsidiaries and potential debt issuance, and discretionary Securities $ 5.3 $ 4.3 funding uses, the most significant of which is the external Combined collateral value $16.7 $23.5 dividend to be paid on PNC’s stock. On March 1, 2009, the Pledged to FHLB-Cincinnati Board decided to reduce PNC’s quarterly common stock Loans $22.3 dividend from $0.66 to $0.10 per share. This action will Securities $ 1.1 reduce the cash requirement for annual external dividends by Combined collateral value $ 6.5 approximately $1.0 billion. Outstanding borrowings Federal Reserve Bank $ 2.0 The principal source of parent company cash flow is the FHLB – Pittsburgh $ 8.8 $ 6.8 dividends it receives from its subsidiary banks, which may be FHLB – Cincinnati $ 6.5 impacted by the following: Total $17.3 $ 6.8 • Capital needs, Unused borrowing capacity • Laws and regulations, Federal Reserve Bank $33.4 $18.2 • Corporate policies, FHLB– Pittsburgh $ 7.9 16.7 • Contractual restrictions, and FHLB – Cincinnati — — • Other factors. Total $41.3 $34.9 Also, there are statutory and regulatory limitations on the Total FHLB borrowings were $18.1 billion at December 31, ability of national banks to pay dividends or make other 2008 compared with $7.1 billion at December 31, 2007. We capital distributions or to extend credit to the parent company increased total FHLB borrowings during 2008 which provided or its non-bank subsidiaries. See Note 23 Regulatory Matters us with additional liquidity at relatively attractive rates. in the Notes to Consolidated Financial Statements in Item 8 of this Report for a further discussion of these limitations. We can also obtain funding through traditional forms of Dividends may also be impacted by the bank’s capital needs borrowing, including federal funds purchased, repurchase and by contractual restrictions. We provide additional agreements, and short and long-term debt issuances. PNC information on certain contractual restrictions under the Bank, N.A. has the ability to offer up to $20 billion in senior “Perpetual Trust Securities,” “PNC Capital Trust E Trust and subordinated unsecured debt obligations with maturities Preferred Securities,” and “Acquired Entity Trust Preferred of more than nine months. Through December 31, 2008, PNC Securities” sections of the Off-Balance Sheet Arrangements Bank, N.A. had issued $6.9 billion of debt under this program. And Variable Interest Entities section of this Financial Review. The amount available for dividend payments to the PNC Bank, N.A. also has the ability to offer up to $3.0 billion parent company by PNC Bank, N.A. without prior regulatory of its commercial paper. As of December 31, 2008, $327 approval was approximately $351 million at December 31, million of commercial paper was outstanding under this 2008. National City Bank had no statutory dividend capacity program. as of December 31, 2008.

64 In addition to dividends from PNC Bank, N.A., other sources Each of these series of senior notes is guaranteed by the parent of parent company liquidity include cash and short-term company and by the FDIC and is backed by the full faith and investments, as well as dividends and loan repayments from credit of the United States through June 30, 2012. other subsidiaries and dividends or distributions from equity investments. As of December 31, 2008, the parent company See the Executive Summary section of this Financial Review had approximately $4.2 billion in funds available from its cash and Note 19 Shareholders’ Equity in the Notes To and short-term investments. Consolidated Financial Statements in Item 8 of this Report for information regarding PNC’s December 31, 2008 issuance of We can also generate liquidity for the parent company and $7.6 billion of preferred stock and related common stock PNC’s non-bank subsidiaries through the issuance of warrant to the US Treasury under the TARP Capital Purchase securities in public or private markets. Program.

In December 2008, PNC Funding Corp issued the following PNC Funding Corp has the ability to offer up to $3.0 billion of securities totaling $2.9 billion under the FDIC’s Temporary commercial paper to provide the parent company with Liquidity Guarantee Program-Debt Guarantee Program: additional liquidity. As of December 31, 2008, $99 million of • $2 billion of fixed rate senior notes due June 2012. commercial paper was outstanding under this program. These notes pay interest semiannually at a fixed rate of 2.3%. We have effective shelf registration statements which enable • $500 million of fixed rate senior notes due June us to issue additional debt and equity securities, including 2011. These notes pay interest semiannually at a certain hybrid capital instruments. As of December 31, 2008, fixed rate of 1.875%. there were $1.4 billion of parent company contractual • $400 million of floating rate senior notes due June obligations, including commercial paper, with maturities of 2011. Interest will be reset quarterly to 3-month less than one year. LIBOR plus 28 basis points and interest will be paid quarterly. We also provide tables showing contractual obligations and various other commitments representing required and potential cash outflows as of December 31, 2008 under the heading “Commitments” below. Commitments The following tables set forth contractual obligations and various other commitments representing required and potential cash outflows as of December 31, 2008.

Contractual Obligations Payment Due By Period Less than One to three Four to five After five December 31, 2008 - in millions Total one year years years years Remaining contractual maturities of time deposits $ 75,919 $ 44,877 $ 17,758 $ 9,011 $ 4,273 Federal Home Loan Bank borrowings 18,126 5,058 7,887 4,694 487 Other borrowed funds 34,114 13,533 6,730 4,129 9,722 Minimum annual rentals on noncancellable leases 2,615 329 579 459 1,248 Nonqualified pension and postretirement benefits 567 62 124 117 264 Purchase obligations (a) 1,145 398 472 215 60 Total contractual cash obligations $132,486 $ 64,257 $ 33,550 $ 18,625 $ 16,054 (a) Includes purchase obligations for goods and services covered by noncancellable contracts and contracts including cancellation fees.

Other Commitments (a) Amount Of Commitment Expiration By Period Total Amounts Less than One to three Four to five After five December 31, 2008 - in millions Committed one year years years years Other unfunded loan commitments $ 62,665 $ 27,260 $ 22,317 $ 12,358 $ 730 Home equity lines of credit 23,195 14,342 8,853 Consumer credit card lines 19,028 17,549 1,479 Standby letters of credit (b) 10,317 3,855 3,916 2,352 194 Other commitments (c) 1,408 595 390 302 121 Total commitments $ 116,613 $ 63,601 $ 36,955 $ 15,012 $ 1,045 (a) Other commitments are funding commitments that could potentially require performance in the event of demands by third parties or contingent events. Loan commitments are reported net of participations, assignments and syndications. (b) Includes $5.1 billion of standby letters of credit that support remarketing programs for customers’ variable rate demand notes. (c) Includes unfunded commitments related to private equity investments of $540 million and other investments of $178 million which are not on our Consolidated Balance Sheet. Also includes commitments related to tax credit investments of $690 million which are included in other liabilities on the Consolidated Balance Sheet.

65 MARKET RISK MANAGEMENT OVERVIEW Sensitivity results and market interest rate benchmarks for the Market risk is the risk of a loss in earnings or economic value fourth quarters of 2008 and 2007 follow: due to adverse movements in market factors such as interest rates, credit spreads, foreign exchange rates, and equity prices. Interest Sensitivity Analysis Fourth Fourth We are exposed to market risk primarily by our involvement Quarter Quarter in the following activities, among others: 2008 2007 • Traditional banking activities of taking deposits and Net Interest Income Sensitivity Simulation extending loans, Effect on net interest income in first year • Private equity and other investments and activities from gradual interest rate change over whose economic values are directly impacted by following 12 months of: market factors, and 100 basis point increase (0.7)% (2.8)% 100 basis point decrease (0.5)% 2.9% • Trading in fixed income products, equities, Effect on net interest income in second year derivatives, and foreign exchange, as a result of from gradual interest rate change over the customer activities, underwriting, and proprietary preceding 12 months of: trading. 100 basis point increase 1.9% (6.4)% 100 basis point decrease (3.1)% 4.4% We have established enterprise-wide policies and Duration of Equity Model methodologies to identify, measure, monitor, and report Base case duration of equity (in years): NM(a) 2.1 market risk. Market Risk Management provides independent Key Period-End Interest Rates oversight by monitoring compliance with these limits and One month LIBOR .44% 4.60% guidelines, and reporting significant risks in the business to Three-year swap 1.76% 3.91% the Risk Committee of the Board. (a) NM = not meaningful. Given the inherent limitations in certain of these measurement tools and techniques, results become less meaningful as interest rates approach zero. MARKET RISK MANAGEMENT –INTEREST RATE RISK Interest rate risk results primarily from our traditional banking In addition to measuring the effect on net interest income activities of gathering deposits and extending loans. Many assuming parallel changes in current interest rates, we factors, including economic and financial conditions, routinely simulate the effects of a number of nonparallel movements in interest rates, and consumer preferences, affect interest rate environments. The following Net Interest Income the difference between the interest that we earn on assets and Sensitivity To Alternative Rate Scenarios table reflects the the interest that we pay on liabilities and the level of our percentage change in net interest income over the next two noninterest-bearing funding sources. Due to the repricing term 12-month periods assuming (i) the PNC Economist’s most mismatches and embedded options inherent in certain of these likely rate forecast, (ii) implied market forward rates, and products, changes in market interest rates not only affect (iii) a Two-Ten Inversion (a 200 basis point inversion between expected near-term earnings, but also the economic values of two-year and ten-year rates superimposed on current base these assets and liabilities. rates) scenario.

Asset and Liability Management centrally manages interest rate risk within limits and guidelines set forth in our risk management policies approved by the Asset and Liability Committee and the Risk Committee of the Board.

66 Net Interest Income Sensitivity To Alternative Rate MARKET RISK MANAGEMENT –TRADING RISK Scenarios (Fourth Quarter 2008) Our trading activities include customer-driven trading in fixed income securities, equities, derivatives, and foreign exchange PNC Market Two-Ten Economist Forward Inversion contracts. They also include the underwriting of fixed income First year sensitivity 0.5% (0.2)% 2.3% and equity securities and proprietary trading. Second year sensitivity 4.9% 2.4% 2.3% We use value-at-risk (“VaR”) as the primary means to All changes in forecasted net interest income are relative to measure and monitor market risk in trading activities. The results in a base rate scenario where current market rates are Risk Committee of the Board establishes an enterprise-wide assumed to remain unchanged over the forecast horizon. VaR limit on our trading activities.

When forecasting net interest income, we make assumptions During 2008, our VaR ranged between $5.4 million and $18.4 about interest rates and the shape of the yield curve, the million, averaging $10.8 million. During 2007, our VaR volume and characteristics of new business, and the behavior ranged between $6.1 million and $12.8 million, averaging of existing on- and off-balance sheet positions. These $8.5 million. The increase in VaR compared with 2007 assumptions determine the future level of simulated net reflected ongoing market volatility. interest income in the base interest rate scenario and the other To help ensure the integrity of the models used to calculate interest rate scenarios presented in the following table. These VaR for each portfolio and enterprise-wide, we use a process simulations assume that as assets and liabilities mature, they known as backtesting. The backtesting process consists of are replaced or repriced at market rates. comparing actual observations of trading-related gains or The graph below presents the yield curves for the base rate losses against the VaR levels that were calculated at the close scenario and each of the alternate scenarios one year forward. of the prior day. Under typical market conditions, we would expect an average of two to three instances a year in which actual losses exceeded the prior day VaR measure at the Alternate Interest Rate Scenarios enterprise-wide level. As a result of increased volatility in One Year Forward certain markets, there were 10 such instances during 2008 4.0 compared with two such instances in 2007.

3.0 The following graph shows a comparison of enterprise-wide trading-related gains and losses against prior day VaR for the 2.0 period.

1.0 Enterprise-Wide Trading-Related Gains/Losses Versus Value at Risk YTD 2008 25 0.0 20 1M LIBOR 2Y Swap 3Y Swap 5Y Swap 10Y Swap 15 10 P&L

Base Rates PNC Economist Market Forward Two-Ten Inversion 5

0

Millions (5) The results of the fourth quarter 2008 interest sensitivity (10) (15) analyses reflect our current best estimates of the impact of VaR integrating National City’s balance sheet, including the (20)

(25) 12/31/07 1/31/08 2/29/08 3/31/08 4/30/08 5/31/08 6/30/08 7/31/08 8/31/08 9/30/08 10/31/08 11/30/08 12/31/08 preliminary effects of purchase accounting, balance sheet repositioning, and deposit pricing strategies. Going forward as these estimates and strategies are finalized or revised, the results of our analyses may change. The fourth quarter 2008 Total trading revenue for the past three years was as follows: analyses also reflect the impact of the rapid decline in market interest rates that occurred during that quarter, in which Year end December 31 – in millions 2008 2007 2006 period-end one-month LIBOR and three-year swap rates Net interest income (expense) $72 $ 7 $ (6) declined 349 basis points and 197 basis points, respectively. Noninterest income (55) 104 183 Total trading revenue $17 $111 $177 The fourth quarter 2008 interest sensitivity analyses indicate Securities underwriting and that our Consolidated Balance Sheet is positioned to benefit trading (a) $(17) $41 $38 from an increase in interest rates. We believe that we have the Foreign exchange 73 58 55 deposit funding base and balance sheet flexibility to adjust, Financial derivatives (39) 12 84 where appropriate and permissible, to changing interest rates Total trading revenue $17 $111 $177 and market conditions. (a) Includes changes in fair value for certain loans accounted for at fair value.

67 The decline in total trading revenue for 2008 primarily related (a) Included in Interest-earning assets-Other on the Average Consolidated Balance Sheet And Net Interest Analysis. to losses sustained in our proprietary trading activities. These (b) Included in Federal funds sold and resale agreements. decreases reflected the negative impact of significant (c) Included in Noninterest-earning assets-Other. widening of market credit spreads in extremely illiquid (d) Included in Other borrowed funds. (e) Included in Repurchase agreements and Other borrowed funds. markets. We took the following steps during 2008 to reduce (f) Included in Accrued expenses and other liabilities. our proprietary trading positions: • Sold Hilliard Lyons on March 31, 2008, including MARKET RISK MANAGEMENT –EQUITY AND OTHER their proprietary trading positions; INVESTMENT RISK • Significantly reduced the PNC Capital Markets Equity investment risk is the risk of potential losses associated municipal bond arbitrage book during the first half of with investing in both private and public equity markets. In 2008, closing it completely by August 2008; addition to extending credit, taking deposits, and underwriting • Reduced significantly proprietary risk taking within and trading financial instruments, we make and manage direct the customer-focused equity derivatives book during investments in a variety of transactions, including 2008; management buyouts, recapitalizations, and later-stage growth • Reduced convertible arbitrage book positions during financings in a variety of industries. We also have investments 2008 from close to $225 million face value of bonds in affiliated and non-affiliated funds that make similar to close to $100 million; investments in private equity and in debt and equity-oriented • Terminated all derivative positions hedging hedge funds. The economic and/or book value of these municipal bond exposure in tender option bond investments and other assets such as loan servicing rights are trusts, terminated the trusts, and transferred the directly affected by changes in market factors. remaining long municipal bond position (approximately $300 million face value) to the The primary risk measurement for equity and other available for sale portfolio. This transfer occurred in investments is economic capital. Economic capital is a the fourth quarter of 2008; common measure of risk for credit, market and operational • Sold down approximately 80% of the positions in the risk. It is an estimate of the worst-case value depreciation over non-agency mortgage-backed securities and one year within a 99.9% confidence level. Given the illiquid commercial mortgage-backed securities proprietary nature of many of these types of investments, it can be a trading books during 2008. The remaining positions challenge to determine their fair values. Market Risk (market value of approximately $300 million) were Management and Finance provide independent oversight of transferred to the available for sale portfolio after the valuation process. terminating swap hedges. This transfer occurred in the fourth quarter of 2008; and • Significantly reduced all other proprietary trading Various PNC business units manage our private equity and positions including interest rate swaps, futures, swap other investment activities. Our businesses are responsible for options and credit default swaps. making investment decisions within the approved policy limits and associated guidelines. Trading securities at December 31, 2008 totaled $1.7 billion, including $1 billion from National City, compared with $3.6 BlackRock billion at December 31, 2007 and reflected our risk PNC owns approximately 43 million shares of BlackRock management actions outlined above. common stock, accounted for under the equity method. Our total investment in BlackRock was $4.2 billion at Average trading assets and liabilities for the past three years December 31, 2008 compared with $4.1 billion at consisted of the following: December 31, 2007. The market value of our investment in BlackRock was $5.8 billion at December 31, 2008. The Year ended - in millions 2008 2007 2006 primary risk measurement, similar to other equity investments, Assets is economic capital. Securities (a) $2,387 $2,708 $1,712 Resale agreements (b) 1,794 1,133 623 The discussion of BlackRock within the Business Segments Financial derivatives (c) 2,389 1,378 1,148 Loans at fair value (c) 83 166 128 Review section of this Item 7 includes information about Total assets $6,653 $5,385 $3,611 changes in our ownership structure of BlackRock in 2009. Liabilities Securities sold short (d) $1,294 $1,657 $ 965 Tax Credit Investments Repurchase agreements Included in our equity investments are limited partnerships and other borrowings (e) 756 520 833 that sponsor tax credit investments. These investments, Financial derivatives (f) 2,423 1,384 1,103 consisting of partnerships as well as equity investments held Borrowings at fair value (f) 22 39 31 by consolidated partnerships, totaled $2.3 billion at Total liabilities $4,495 $3,600 $2,932 December 31, 2008. Investments accounted for under the

68 equity method totaled $1.7 billion while investments private equity funds. Included in direct investments are accounted for under the cost method totaled $648 million at investment activities of two private equity funds that are December 31, 2008. These investments totaled $1.0 billion at consolidated for financial reporting purposes. The minority December 31, 2007, all of which were accounted for under the and noncontrolling interests of these funds totaled $142 equity method. million as of December 31, 2008. Our unfunded commitments related to private equity totaled $540 million at December 31, Visa 2008 compared with $270 million at December 31, 2007. At December 31, 2008, our remaining investment in Visa Class B common shares totaled approximately 23.2 million Other Investments shares, including 19.7 million shares acquired in connection We also make investments in affiliated and non-affiliated with our National City acquisition. The Visa B shares owned funds with both traditional and alternative investment by National City were recorded by PNC at fair value strategies. The economic values could be driven by either the (including a liquidity discount) as part of our acquisition. The fixed-income market or the equity markets, or both. At PNC-owned Visa B shares are recorded at zero book value. December 31, 2008, other investments totaled $853 million Considering the expected reduction in the IPO conversion compared with $384 million at December 31, 2007. We ratio due to settled litigation reported by Visa, these shares recognized losses related to these investments of $156 million would convert to approximately 14.6 million of the publicly during 2008 including $76 million in the fourth quarter. Given traded Visa Class A common shares. Based on the the nature of these investments and if current market December 31, 2008 closing price of $52.45 for the Visa conditions affecting their valuation were to continue or shares, our remaining investment had an unrecognized pretax worsen, we could incur future losses. value of approximately $312 million at that date. The Visa Class B common shares we own generally will not be Our unfunded commitments related to other investments transferable until they can be converted into shares of the totaled $178 million at December 31, 2008 compared with $79 publicly traded class of stock, which cannot happen until the million at December 31, 2007. later of three years after the IPO or settlement of all of the specified litigation. As stated above, it is expected that Visa IMPACT OF INFLATION will continue to adjust the conversion ratio of Visa Class B to Our assets and liabilities are primarily monetary in nature. Class A shares in connection with settlements in excess of any Accordingly, future changes in prices do not affect the amounts then in escrow for that purpose and will also reduce obligations to pay or receive fixed and determinable amounts the conversion ratio to the extent that it adds any funds to the of money. During periods of inflation, monetary assets lose escrow in the future. Note 25 Commitments and Guarantees in value in terms of purchasing power and monetary liabilities our Notes To Consolidated Financial Statements included in have corresponding purchasing power gains. The concept of Item 8 of this Report has further information on our Visa purchasing power, however, is not an adequate indicator of the indemnification obligation. effect of inflation on banks because it does not take into account changes in interest rates, which are an important Private Equity determinant of our earnings. The private equity portfolio is comprised of equity and mezzanine investments that vary by industry, stage and type FINANCIAL DERIVATIVES of investment. Private equity investments are reported at fair We use a variety of financial derivatives as part of the overall value. Changes in the values of private equity investments are asset and liability risk management process to help manage reflected in our results of operations. Due to the nature of the interest rate, market and credit risk inherent in our business investments, the valuations incorporate assumptions as to activities. Substantially all such instruments are used to future performance, financial condition, liquidity, availability manage risk related to changes in interest rates. Interest rate of capital, and market conditions, among other factors, to and total return swaps, interest rate caps and floors and futures determine the estimated fair value of the investments. Market contracts are the primary instruments we use for interest rate conditions and actual performance of the investments could risk management. differ from these assumptions. Accordingly, lower valuations may occur that could adversely impact earnings in future Financial derivatives involve, to varying degrees, interest rate, periods. Also, the valuations may not represent amounts that market and credit risk. For interest rate swaps and total return will ultimately be realized from these investments. See Note 1 swaps, options and futures contracts, only periodic cash Accounting Policies in Item 8 for additional information. payments and, with respect to options, premiums are exchanged. Therefore, cash requirements and exposure to At December 31, 2008, private equity investments carried at credit risk are significantly less than the notional amount on estimated fair value totaled $1.2 billion compared with $561 these instruments. Further information on our financial million at December 31, 2007. As of December 31, 2008, derivatives is presented in Note 1 Accounting Policies and $620 million was invested directly in a variety of companies Note 17 Financial Derivatives in the Notes To Consolidated and $566 million was invested indirectly through various Financial Statements in Item 8 of this Report.

69 Not all elements of interest rate, market and credit risk are addressed through the use of financial or other derivatives, and such instruments may be ineffective for their intended purposes due to unanticipated market characteristics, among other reasons.

The following tables provide the notional or contractual amounts and estimated net fair value of financial derivatives used for risk management and designated as accounting hedges as well as free-standing derivatives at December 31, 2008 and 2007. Weighted- average interest rates presented are based on contractual terms, if fixed, or the implied forward yield curve at each respective date, if floating.

Financial Derivatives – 2008

Weighted- Notional/ Estimated Weighted Average Interest Contractual Net Average Rates December 31, 2008 - dollars in millions Amount Fair Value Maturity Paid Received Accounting Hedges Interest rate risk management Asset rate conversion Interest rate swaps (a) Receive fixed $ 5,618 $ 527 3 yrs. 2.18% 4.76% Liability rate conversion Interest rate swaps (a) Receive fixed 9,888 888 3 yrs. 7 mos. 2.27% 4.73% Total interest rate risk management 15,506 1,415 Total accounting hedges (b) $ 15,506 $1,415 Free-Standing Derivatives Customer-related Interest rate Swaps (c) $ 97,337 $ (161) 4 yrs. 9 mos. 3.08% 3.07% Caps/floors Sold (c) 3,878 (12) 4 yrs. 4 mos. NM NM Purchased 2,410 8 2 yrs. 10 mos. NM NM Futures 8,878 1 yr. 1 mo. NM NM Foreign exchange (c) 8,877 (3) 5 mos. NM NM Equity 984 (4) 1 yr. NM NM Swaptions 3,058 160 13 yrs. 2 mos. NM NM Other 335 12 3 yrs. 3 mos. NM NM Total customer-related 125,757 — Residential mortgage servicing rights 52,980 109 5 yrs. 10 mos. NM NM Other risk management and proprietary Interest rate Swaps (d) 24,481 667 3 yrs. 3.93% 2.70% Caps/floors Sold 514 1 yr. 4 mos. NM NM Purchased 280 1 4 yrs. 7 mos. NM NM Futures 8,359 8 mos. NM NM Foreign exchange 95 4 mos. NM NM Credit derivatives 2,937 205 13 yrs. 8 mos. NM NM Risk participation agreements 3,290 3 yrs. 1 mo. NM NM Commitments related to mortgage-related assets (c) 18,853 (12) 1 mo. NM NM Options Swaptions 276 17 10 yrs. 11 mos. NM NM Other (e) 438 44 NM NM NM Total other risk management and proprietary 59,523 922 Total free-standing derivatives $238,260 $1,031 (a) The floating rate portion of interest rate contracts is based on money-market indices. As a percent of notional amount, 55% were based on 1-month LIBOR and 45% on 3-month LIBOR. (b) Fair value amount includes net accrued interest receivable of $147 million. (c) The increases in the negative fair values from December 31, 2007 to December 31, 2008 for interest rate contracts, foreign exchange and commitments related to mortgage-related assets were due to the changes in fair values of the existing contracts along with new contracts entered into during 2008. (d) Due to the adoption of SFAS 159 as of January 1, 2008, we discontinued hedge accounting for our commercial mortgage banking pay-fixed interest rate swaps; therefore, the fair value of these are now reported in this category. (e) Relates to PNC’s obligation to help fund certain BlackRock LTIP programs. Additional information regarding the BlackRock/MLIM transaction and our BlackRock LTIP shares obligation is included in Note 2 Acquisitions and Divestitures included in the Notes to Consolidated Financial Statements in Item 8 of this Report. NM Not meaningful

70 Financial Derivatives – 2007

Notional/ Estimated Weighted Weighted-Average Contractual Net Average Interest Rates December 31, 2007- dollars in millions Amount Fair Value Maturity Paid Received Accounting Hedges Interest rate risk management Asset rate conversion Interest rate swaps (a) Receive fixed $ 7,856 $ 325 4 yrs. 2 mos. 4.28% 5.34% Liability rate conversion Interest rate swaps (a) Receive fixed 9,440 269 4 yrs. 10 mos. 4.12% 5.09% Total interest rate risk management 17,296 594 Commercial mortgage banking risk management Pay fixed interest rate swaps (a) 1,128 (79) 8 yrs. 8 mos. 5.45% 4.52% Total accounting hedges (b) $ 18,424 $ 515 Free-Standing Derivatives Customer-related Interest rate Swaps $ 61,768 $ (39) 5 yrs. 4 mos. 4.46% 4.49% Caps/floors Sold 2,837 (5) 6 yrs. 5 mos. NM NM Purchased 2,356 7 3 yrs. 7 mos. NM NM Futures 5,564 8 mos. NM NM Foreign exchange 7,028 8 7 mos. NM NM Equity 1,824 (69) 1 yr. 5 mos. NM NM Swaptions 3,490 40 13 yrs. 10 mos. NM NM Other 200 10 yrs. 6 mos. NM NM Total customer-related 85,067 (58) Other risk management and proprietary Interest rate Swaps 41,247 6 4 yrs. 5 mos. 4.44% 4.47% Caps/floors Sold 6,250 (82) 2 yrs. 1 mo. NM NM Purchased 7,760 117 1 yr. 11 mos. NM NM Futures 43,107 1 yr. 7 mos. NM NM Foreign exchange 8,713 5 6 yrs. 8 mos. NM NM Credit derivatives 5,823 42 12 yrs. 1 mo. NM NM Risk participation agreements 1,183 4 yrs. 6 mos. NM NM Commitments related to mortgage-related assets 3,190 10 4 mos. NM NM Options Futures 39,158 (2) 8 mos. NM NM Swaptions 21,800 49 8 yrs. 1 mo. NM NM Other (c) 442 (201) NM NM NM Total other risk management and proprietary 178,673 (56) Total free-standing derivatives $263,740 $ (114) (a) The floating rate portion of interest rate contracts is based on money-market indices. As a percent of a notional amount, 52% were based on 1-month LIBOR, 43% on 3-month LIBOR and 5% on Prime Rate. (b) Fair value amounts include net accrued interest receivable of $130 million. (c) See (e) on page 70. NM Not meaningful

71 ERSUS • The effects of our third quarter 2006 balance sheet 2007 V 2006 repositioning activities that resulted in charges totaling $244 million, and CONSOLIDATED INCOME STATEMENT REVIEW • PNC consolidated BlackRock in its results for the Summary Results first nine months of 2006 but accounted for Consolidated net income for 2007 was $1.467 billion or $4.35 BlackRock on the equity method for the fourth per diluted share and for 2006 was $2.595 billion or $8.73 per quarter of 2006 and all of 2007. Had our BlackRock diluted share. investment been on the equity method for all of 2006, BlackRock’s noninterest income reported by us Net income for 2006 included the after-tax impact of the would have been lower by $943 million for that year. following items: • The third quarter gain on the BlackRock/MLIM Apart from the impact of these items, noninterest income transaction of $1.3 billion, or $4.36 per diluted share; increased $367 million, or 10%, in 2007 compared with 2006 • The third quarter securities portfolio rebalancing loss largely as a result of the Mercantile acquisition and growth in of $127 million, or $.43 per diluted share; several fee income categories. • BlackRock/MLIM transaction integration costs of $47 million, or $.16 per diluted share, and Additional analysis • The third quarter mortgage loan portfolio Fund servicing fees declined $58 million in 2007, to $835 repositioning loss of $31 million, or $.10 per diluted million, compared with $893 million in the prior year. share. Amounts for 2006 included $117 million of distribution fee revenue at Global Investment Servicing. Effective January 1, The aggregate impact of these items increased 2006 net 2007, we refined our accounting and reporting of Global income by $1.1 billion, or $3.67 per diluted share. Investment Servicing’s distribution fee revenue and related expense amounts and present these amounts net on a Net Interest Income prospective basis. Prior to 2007, the distribution amounts were Net interest income was $2.915 billion for 2007 and $2.245 shown on a gross basis within fund servicing fees and within billion for 2006, an increase of $670 million, or 30%. This other noninterest expense and offset each other entirely with increase was consistent with the $20.3 billion, or 26%, no impact on earnings. increase in average interest-earning assets during 2007 compared with 2006. The net interest margin was 3.00% in Apart from the impact of the distribution fee revenue included 2007 and 2.92% for 2006, an increase of 8 basis points. in the 2006 amounts, fund servicing fees increased $59 million in 2007 compared with the prior year. Higher revenue Provision For Credit Losses from offshore operations, transfer agency, managed accounts The provision for credit losses totaled $315 million for 2007 and alternative investments contributed to the increase in and $124 million for 2006. Of the total 2007 provision, $188 2007, reflecting net new business and growth from existing million was recorded in the fourth quarter, including clients. approximately $45 million related to our Yardville acquisition. The higher provision in 2007 was also impacted Asset management fees totaled $784 million for 2007 and by an increase in our real estate portfolio, including residential $1.420 billion for 2006. Our equity income from BlackRock real estate development exposure, and growth in total credit has been included in asset management fees beginning with exposure. Total residential real estate development the fourth quarter of 2006. Asset management fees were outstandings were approximately $2.1 billion at December 31, higher in 2006 as the first nine months of 2006 reflected the 2007. impact of BlackRock’s revenue on a consolidated basis.

Noninterest Income Assets managed at December 31, 2007 totaled $74 billion Summary compared with $54 billion at December 31, 2006. This Noninterest income was $3.790 billion for 2007 and $6.327 increase resulted primarily from the Mercantile acquisition. billion for 2006. Noninterest income for 2007 included the impact of an $83 million gain recognized in connection with Consumer services fees increased $81 million, or 13%, to our transfer of BlackRock shares to satisfy a portion of PNC’s $692 million in 2007 compared with 2006. The increase LTIP obligation and a $210 million net loss representing the reflected the impact of Mercantile, higher brokerage fees, mark-to-market adjustment on our LTIP obligation. higher debit card revenues resulting from higher transaction volumes, and fees from the credit card business that began in Noninterest income for 2006 included the impact of the the latter part of 2006. following items: • The gain on the BlackRock/MLIM transaction, which Corporate services revenue was $713 million for 2007, an totaled $2.078 billion, increase of $87 million, or 14%, over 2006. Higher revenue

72 from commercial mortgage servicing including the impact of These increases were largely a result of the acquisition of the ARCS acquisition, treasury management, third party Mercantile. Investments in growth initiatives were mitigated consumer loan servicing activities and the Mercantile by disciplined expense management. acquisition contributed to the increase in 2007 over the prior year. EFFECTIVE TAX RATE Our effective tax rate was 29.9% for 2007 and 34% for 2006. Service charges on deposits increased $35 million, or 11%, to The lower effective tax rate in 2007 compared with the prior $348 million for 2007 compared with 2006. The increase was year reflected the impact of the following matters: primarily due to the impact of Mercantile. • An increase in income taxes related to the gain from, and a $57 million cumulative adjustment to increase Net securities losses totaled $5 million in 2007 and $207 deferred income taxes in connection with, the million in 2006. We took actions during the third quarter of BlackRock/MLIM transaction in 2006, and 2006 that resulted in the sale of approximately $6 billion of • Lower pretax income for the fourth quarter of 2007 investment securities at an aggregate pretax loss of $196 had the impact of reducing the effective tax rate for million during that quarter. the full year.

Other noninterest income decreased $170 million, to $423 CONSOLIDATED BALANCE SHEET REVIEW million, in 2007 compared with 2006. Net losses of $127 Loans million in 2007 representing the net of the mark-to-market Loans increased $18.2 billion, or 36%, as of December 31, adjustment on our LTIP obligation and gain recognized in 2007 compared with December 31, 2006. Our Mercantile connection with our transfer of shares to satisfy a portion of acquisition added $12.4 billion of loans including $4.9 billion our LTIP obligation, compared with a net loss of $12 million of commercial, $4.8 billion of commercial real estate, $1.6 on our LTIP shares obligation in 2006, where such obligation billion of consumer and $1.1 billion of residential mortgage was applicable in the fourth quarter. Noninterest revenue from loans. Our Yardville acquisition added $1.9 billion of loans. trading activities totaled $104 million in 2007 compared with $183 million in 2006. While customer trading income Securities increased in comparison, total trading revenue declined in Total securities at December 31, 2007 were $30.2 billion 2007 largely due to the lower economic hedging gains compared with $23.2 billion at December 31, 2006. Securities associated with commercial mortgage loan activity and represented 22% of total assets at December 31, 2007 and economic hedging losses associated with structured resale 23% of total assets at December 31, 2006. Our acquisition of agreements. Other noninterest income for 2006 included a $48 Mercantile included approximately $2 billion of securities million loss incurred in the third quarter in connection with classified as available for sale. The increase in total securities the rebalancing of our residential mortgage portfolio. compared with December 31, 2006 was primarily due to higher balances in residential mortgage-backed, commercial Noninterest income for 2006 also included the $2.078 billion mortgage-backed and asset-backed securities. gain on the BlackRock/MLIM transaction, whereas there was no similar transaction in 2007. At December 31, 2007, the investment securities balance included a net unrealized loss of $265 million, which Noninterest Expense represented the difference between fair value and amortized Total noninterest expense was $4.296 billion for 2007, a cost. The comparable amount at December 31, 2006 was a net decrease of $147 million compared with $4.443 billion for unrealized loss of $142 million. The expected weighted- 2006. average life of investment securities (excluding corporate stocks and other) was 3 years and 6 months at December 31, Noninterest expense for 2007 included the following: 2007 and 3 years and 8 months at December 31, 2006. • Acquisition integration costs of $102 million, and • A charge of $82 million for an indemnification Loans Held For Sale obligation related to certain Visa litigation. Loans held for sale totaled $3.9 billion at December 31, 2007 compared with $2.4 billion at December 31, 2006. Noninterest expense for 2006 included the following: • The first nine months of 2006 included $765 million Loans held for sale included commercial mortgage loans of expenses related to BlackRock, which was still intended for securitization totaling $2.1 billion at consolidated during that time, and December 31, 2007 and $.9 billion at December 31, 2006. The • BlackRock/MLIM transaction integration costs balance at December 31, 2007 increased as market conditions totaling $91 million. were not conducive to completing securitization transactions during the fourth quarter of 2007. Apart from the impact of these items, noninterest expense increased $525 million, or 15%, in 2007 compared with 2006.

73 Loans held for sale also included education loans held for sale Shareholders’ Equity of $1.5 billion at December 31, 2007 and $1.3 billion at Total shareholders’ equity increased $4.1 billion, to $14.9 December 31, 2006. Gains on sales of education loans totaled billion, at December 31, 2007 compared with December 31, $24 million in 2007 and $33 million for 2006. These gains are 2006. In addition to the net impact of earnings and dividends reflected in the other noninterest income line item in our in 2007, this increase reflected a $2.5 billion reduction in Consolidated Income Statement and in the results of the Retail treasury stock and a $1.0 billion increase in capital surplus, Banking business segment. largely due to the issuance of PNC common shares for the Mercantile and Yardville acquisitions. Asset Quality Total nonperforming assets at December 31, 2007 increased Regulatory capital ratios at December 31, 2007 were 6.2% for $311 million, to $495 million, compared with December 31, leverage, 6.8% for Tier 1 risk-based and 10.3% for total risk- 2006. Nonperforming loans, the largest component of based capital. At December 31, 2006, the regulatory capital nonperforming assets, increased $294 million, to $454 ratios were 9.3% for leverage, 10.4% for Tier 1 risk-based and million, at December 31, 2007 compared with December 31, 13.5% for total risk-based capital. 2006. Of this increase in nonperforming loans, $192 million occurred during the fourth quarter of 2007. The increase was Glossary of Terms primarily due to higher nonaccrual commercial real estate loans primarily related to residential real estate development Accounting/administration net fund assets - Net domestic and exposure. At December 31, 2007, our largest nonperforming foreign fund investment assets for which we provide asset was approximately $20 million and our average accounting and administration services. We do not include nonperforming loan associated with commercial lending was these assets on our Consolidated Balance Sheet. approximately $0.5 million. Adjusted average total assets - Primarily comprised of total The ratio of nonperforming assets to total assets rose to .36% average quarterly (or annual) assets plus (less) unrealized at December 31, 2007 compared with .18% at December 31, losses (gains) on investment securities, less goodwill and 2006. The allowance for loan and lease losses was $830 certain other intangible assets (net of eligible deferred taxes). million and represented 1.21% of total loans and 183% of nonperforming loans at December 31, 2007. The comparable Annualized - Adjusted to reflect a full year of activity. amounts were $560 million, 1.12% and 350%, respectively, at December 31, 2006. Assets under management - Assets over which we have sole or Goodwill and Other Intangible Assets shared investment authority for our customers/clients. We do The sum of goodwill and other intangible assets increased not include these assets on our Consolidated Balance Sheet. $5.5 billion at December 31, 2007 compared with the prior year end, to $9.6 billion. We added $4.7 billion of goodwill Basis point - One hundredth of a percentage point. and other intangible assets in connection with the Mercantile acquisition. In addition, our acquisitions of ARCS, Yardville Charge-off - Process of removing a loan or portion of a loan and Albridge collectively added $.9 billion of goodwill and from our balance sheet because it is considered uncollectible. other intangible assets during 2007. We also record a charge-off when a loan is transferred to held for sale by reducing the carrying amount by the allowance for Funding Sources loan losses associated with such loan or, if the market value is Total funding sources were $113.6 billion at December 31, less than its carrying amount, by the amount of that difference. 2007 and $81.3 billion at December 31, 2006. Funding sources increased $32.3 billion in the comparison as total Common shareholders’ equity to total assets - Common deposits increased $16.4 billion and total borrowed funds shareholders’ equity divided by total assets. Common increased $15.9 billion. Our acquisition of Mercantile added shareholders’ equity equals total shareholders’ equity less the $12.5 billion of deposits and $2.1 billion of borrowed funds. liquidation value of preferred stock. The Yardville acquisition resulted in $2.0 billion of deposits. Credit derivatives - Contractual agreements, primarily credit During the first quarter of 2007 we issued borrowings to fund default swaps, that provide protection against a credit event of the $2.1 billion cash portion of the Mercantile acquisition. The one or more referenced credits. The nature of a credit event is remaining increase in borrowed funds was the result of growth established by the protection buyer and protection seller at the in loans and securities and the need to fund other net changes inception of a transaction, and such events include in our balance sheet. During the second half of 2007 we bankruptcy, insolvency and failure to meet payment substantially increased Federal Home Loan Bank borrowings, obligations when due. The buyer of the credit derivative pays which provided us with additional liquidity at relatively a periodic fee in return for a payment by the protection seller attractive rates. upon the occurrence, if any, of a credit event.

74 Credit spread - The difference in yield between debt issues of Efficiency - Noninterest expense divided by the sum of net similar maturity. The excess of yield attributable to credit interest income (GAAP basis) and noninterest income. spread is often used as a measure of relative creditworthiness, with a reduction in the credit spread reflecting an Fair value - The price that would be received to sell an asset or improvement in the borrower’s perceived creditworthiness. the price that would be paid to transfer a liability on the measurement date using the principal or most advantageous Custody assets - Investment assets held on behalf of clients market for the asset or liability in an orderly transaction under safekeeping arrangements. We do not include these between willing market participants. assets on our Consolidated Balance Sheet. Investment assets held in custody at other institutions on our behalf are included Foreign exchange contracts - Contracts that provide for the in the appropriate asset categories on the Consolidated future receipt and delivery of foreign currency at previously Balance Sheet as if physically held by us. agreed-upon terms.

Derivatives - Financial contracts whose value is derived from Funds transfer pricing - A management accounting publicly traded securities, interest rates, currency exchange methodology designed to recognize the net interest income rates or market indices. Derivatives cover a wide assortment effects of sources and uses of funds provided by the assets and of financial contracts, including forward contracts, futures, liabilities of a business segment. We assign these balances options and swaps. LIBOR-based funding rates at origination that represent the interest cost for us to raise/invest funds with similar maturity Distressed loan portfolio - Includes residential real estate and repricing structures. development loans, cross border leases, subprime residential mortgage loans, brokered home equity loans and certain other Futures and forward contracts - Contracts in which the buyer residential real estate loans. These loans require special agrees to purchase and the seller agrees to deliver a specific servicing and management oversight given current market financial instrument at a predetermined price or yield. May be conditions. The majority of these loans are from acquisitions, settled either in cash or by delivery of the underlying financial primarily National City. instrument.

Duration of equity - An estimate of the rate sensitivity of our GAAP - Accounting principles generally accepted in the economic value of equity. A negative duration of equity is United States of America. associated with asset sensitivity (i.e., positioned for rising interest rates), while a positive value implies liability Impaired loans - Acquired loans determined to be credit sensitivity (i.e., positioned for declining interest rates). For impaired under AICPA Statement of Position 03-3, example, if the duration of equity is +1.5 years, the economic Accounting for Certain Loans or Debt Securities Acquired in value of equity declines by 1.5% for each 100 basis point a Transfer. Loans are determined to be impaired if there is increase in interest rates. evidence of credit deterioration since origination and for which it is probable that all contractually required payments Earning assets - Assets that generate income, which include: will not be collected. federal funds sold; resale agreements; trading securities; interest-earning deposits with banks; other short-term Interest rate floors and caps - Interest rate protection investments; loans held for sale; loans, net of unearned instruments that involve payment from the protection seller to income; investment securities; and certain other assets. the protection buyer of an interest differential, which represents the difference between a short-term rate (e.g., three- Economic capital - Represents the amount of resources that a month LIBOR) and an agreed-upon rate (the strike rate) business segment should hold to guard against potentially applied to a notional principal amount. large losses that could cause insolvency. It is based on a measurement of economic risk, as opposed to risk as defined Interest rate swap contracts - Contracts that are entered into by regulatory bodies. The economic capital measurement primarily as an asset/liability management strategy to reduce process involves converting a risk distribution to the capital interest rate risk. Interest rate swap contracts are exchanges of that is required to support the risk, consistent with our target interest rate payments, such as fixed-rate payments for credit rating. As such, economic risk serves as a “common floating-rate payments, based on notional principal amounts. currency” of risk that allows us to compare different risks on a similar basis. Intrinsic value - The amount by which the fair value of an underlying stock exceeds the exercise price of an option on Effective duration - A measurement, expressed in years, that, that stock. when multiplied by a change in interest rates, would approximate the percentage change in value of on- and off- Investment securities - Collectively, securities available for balance sheet positions. sale and securities held to maturity.

75 Leverage ratio - Tier 1 risk-based capital divided by adjusted is considered other-than-temporary when it is probable that the average total assets. holder will be unable to collect all amounts due according to contractual terms of a debt security at acquisition. A few factors LIBOR - Acronym for London InterBank Offered Rate. that are considered to determine whether a decline in fair value LIBOR is the average interest rate charged when banks in the is other than temporary may include a) the length of the time London wholesale money market (or interbank market) and the extent to which the market value has been less than borrow unsecured funds from each other. LIBOR rates are cost; b) the financial condition and near-term prospects of the used as a benchmark for interest rates on a global basis. issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may Net interest income from loans and deposits - A management impair the earnings potential of the investment or the accounting assessment, using funds transfer pricing discontinuance of a segment of the business that may affect the methodology, of the net interest contribution from loans and future earnings potential; or c) the intent and ability of the deposits. holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. Net interest margin - Annualized taxable-equivalent net interest income divided by average earning assets. Securities determined to be other-than-temporary-impaired are written down to fair value with the loss recognized in income Nondiscretionary assets under administration - Assets we hold during the period in which the assessment is made. The fair for our customers/clients in a non-discretionary, custodial value would take into account credit and liquidity risk. capacity. We do not include these assets on our Consolidated Balance Sheet. Recovery - Cash proceeds received on a loan that we had previously charged off. We credit the amount received to the Noninterest income to total revenue - Noninterest income allowance for loan and lease losses. divided by the sum of net interest income (GAAP basis) and Return on average assets - Annualized net income divided by noninterest income. average assets.

Nonperforming assets - Nonperforming assets include Return on average capital - Annualized net income divided by nonaccrual loans, troubled debt restructured loans, foreclosed average capital. assets and other assets. We do not accrue interest income on assets classified as nonperforming. Return on average common shareholders’ equity - Annualized net income less preferred stock dividends divided by average Nonperforming loans - Nonperforming loans include loans to common shareholders’ equity. commercial, commercial real estate, equipment lease financing, consumer, and residential mortgage customers and Return on average tangible common shareholders’ equity - construction customers as well as troubled debt restructured Annualized net income less preferred stock dividends divided loans. Nonperforming loans do not include loans held for sale by average common shareholders’ equity less goodwill and or foreclosed and other assets. We do not accrue interest other intangible assets (net of deferred taxes for both taxable income on loans classified as nonperforming. and nontaxable combinations), and excluding mortgage servicing rights. Notional amount - A number of currency units, shares, or other units specified in a derivatives contract. Risk-weighted assets - Primarily computed by the assignment of specific risk-weights (as defined by the Board of Governors Operating leverage - The period to period dollar or percentage of the Federal Reserve System) to assets and off-balance sheet change in total revenue (GAAP basis) less the dollar or instruments. percentage change in noninterest expense. A positive variance Securitization - The process of legally transforming financial indicates that revenue growth exceeded expense growth (i.e., assets into securities. positive operating leverage) while a negative variance implies expense growth exceeded revenue growth (i.e., negative Servicing rights - An intangible asset or liability created by an operating leverage). obligation to service assets for others. Typical servicing rights include the right to receive a fee for collecting and forwarding Options - Contracts that grant the purchaser, for a premium payments on loans and related taxes and insurance premiums payment, the right, but not the obligation, to either purchase or held in escrow. sell the associated financial instrument at a set price during a specified period or at a specified date in the future. Swaptions - Contracts that grant the purchaser, for a premium payment, the right, but not the obligation, to enter into an Other-than-temporary impairment - Impairment occurs when interest rate swap agreement during a specified period or at a the fair value of a security is less than its cost. The impairment specified date in the future.

76 Tangible common equity ratio - Period-end common Transaction deposits - The sum of money market and interest- shareholders’ equity less goodwill and other intangible assets bearing demand deposits and demand and other noninterest- (net of deferred taxes), and excluding mortgage servicing bearing deposits. rights, divided by period-end assets less goodwill and other intangible assets (net of deferred taxes), and excluding Value-at-risk (“VaR”) - A statistically-based measure of risk mortgage servicing rights. which describes the amount of potential loss which may be incurred due to severe and adverse market movements. The Taxable-equivalent interest - The interest income earned on measure is of the maximum loss which should not be certain assets is completely or partially exempt from federal exceeded on 99 out of 100 days. income tax. As such, these tax-exempt instruments typically yield lower returns than taxable investments. To provide more Watchlist - A list of criticized loans, credit exposure or other meaningful comparisons of yields and margins for all interest- assets compiled for internal monitoring purposes. We define earning assets, we use interest income on a taxable-equivalent criticized exposure for this purpose as exposure with an basis in calculating average yields and net interest margins by internal risk rating of other assets especially mentioned, increasing the interest income earned on tax-exempt assets to substandard, doubtful or loss. make it fully equivalent to interest income earned on other taxable investments. This adjustment is not permitted under Yield curve - A graph showing the relationship between the GAAP on the Consolidated Income Statement. yields on financial instruments or market indices of the same credit quality with different maturities. For example, a Tier 1 risk-based capital - Tier 1 risk-based capital equals: “normal” or “positive” yield curve exists when long-term total shareholders’ equity, plus trust preferred capital bonds have higher yields than short-term bonds. A “flat” yield securities, plus certain minority interests that are held by curve exists when yields are the same for short-term and long- others; less goodwill and certain other intangible assets (net of term bonds. A “steep” yield curve exists when yields on long- eligible deferred taxes relating to taxable and nontaxable term bonds are significantly higher than on short-term bonds. combinations), less equity investments in nonfinancial An “inverted” or “negative” yield curve exists when short- companies less ineligible servicing assets and less net term bonds have higher yields than long-term bonds. unrealized holding losses on available for sale equity securities. Net unrealized holding gains on available for sale equity securities, net unrealized holding gains (losses) on CAUTIONARY STATEMENT available for sale debt securities and net unrealized holding gains (losses) on cash flow hedge derivatives are excluded REGARDING FORWARD-LOOKING from total shareholders’ equity for Tier 1 risk-based capital INFORMATION purposes. We make statements in this Report, and we may from time to Tier 1 risk-based capital ratio - Tier 1 risk-based capital time make other statements, regarding our outlook or divided by period-end risk-weighted assets. expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality and/or other matters regarding or Total fund assets serviced - Total domestic and offshore fund affecting PNC that are forward-looking statements within the investment assets for which we provide related processing meaning of the Private Securities Litigation Reform Act. services. We do not include these assets on our Consolidated Forward-looking statements are typically identified by words Balance Sheet. such as “believe,” “expect,” “anticipate,” “intend,” “outlook,” Total return swap - A non-traditional swap where one party “estimate,” “forecast,” “will,” “ project” and other similar agrees to pay the other the “total return” of a defined words and expressions. underlying asset (e.g., a loan), usually in return for receiving a stream of LIBOR-based cash flows. The total returns of the Forward-looking statements are subject to numerous asset, including interest and any default shortfall, are passed assumptions, risks and uncertainties, which change over time. through to the counterparty. The counterparty is therefore Forward-looking statements speak only as of the date they are assuming the credit and economic risk of the underlying asset. made. We do not assume any duty and do not undertake to update our forward-looking statements. Actual results or Total risk-based capital - Tier 1 risk-based capital plus future events could differ, possibly materially, from those that qualifying subordinated debt and trust preferred securities, we anticipated in our forward-looking statements, and future other minority interest not qualified as Tier 1, eligible gains on results could differ materially from our historical available for sale equity securities and the allowance for loan performance. and lease losses, subject to certain limitations. Our forward-looking statements are subject to the following Total risk-based capital ratio - Total risk-based capital divided principal risks and uncertainties. We provide greater detail by period-end risk-weighted assets. regarding some of these factors elsewhere in this Report,

77 including in the Risk Factors and Risk Management sections. developments in response to the current economic Our forward-looking statements may also be subject to other and financial industry environment, including current risks and uncertainties, including those discussed elsewhere in and future conditions or restrictions imposed as a this Report or in our other filings with the SEC. result of our participation in the TARP Capital • Our businesses and financial results are affected by Purchase Program. business and economic conditions, both generally and – Legislative and regulatory reforms generally, specifically in the principal markets in which we operate. including changes to laws and regulations involving In particular, our businesses and financial results may be tax, pension, bankruptcy, consumer protection, and impacted by: other aspects of the financial institution industry. – Changes in interest rates and valuations in the debt, – Increased litigation risk from recent regulatory and equity and other financial markets. other governmental developments. – Disruptions in the liquidity and other functioning of – Unfavorable resolution of legal proceedings or financial markets, including such disruptions in the regulatory and other governmental inquiries. markets for real estate and other assets commonly – The results of the regulatory examination and securing financial products. supervision process, including our failure to satisfy – Actions by the Federal Reserve and other the requirements of agreements with governmental government agencies, including those that impact agencies. money supply and market interest rates. – Changes in accounting policies and principles. – Changes in our customers’, suppliers’ and other • Our issuance of securities to the US Department of the counterparties’ performance in general and their Treasury may limit our ability to return capital to our creditworthiness in particular. shareholders and is dilutive to our common shares. If we – Changes in customer preferences and behavior, are unable previously to redeem the shares, the dividend whether as a result of changing business and rate increases substantially after five years. economic conditions or other factors. • Our business and operating results are affected by our • A continuation of recent turbulence in significant ability to identify and effectively manage risks inherent portions of the US and global financial markets, in our businesses, including, where appropriate, through particularly if it worsens, could impact our performance, the effective use of third-party insurance, derivatives, and both directly by affecting our revenues and the value of capital management techniques. our assets and liabilities and indirectly by affecting our • The adequacy of our intellectual property protection, and counterparties and the economy generally. the extent of any costs associated with obtaining rights in • Our business and financial performance could be intellectual property claimed by others, can impact our impacted as the financial industry restructures in the business and operating results. current environment, both by changes in the • Our ability to anticipate and respond to technological creditworthiness and performance of our counterparties changes can have an impact on our ability to respond to and by changes in the competitive landscape. customer needs and to meet competitive demands. • Given current economic and financial market conditions, • Our ability to implement our business initiatives and our forward-looking financial statements are subject to strategies could affect our financial performance over the the risk that these conditions will be substantially next several years. different than we are currently expecting. These • Competition can have an impact on customer acquisition, statements are based on our current expectations that growth and retention, as well as on our credit spreads and interest rates will remain low through 2009 with product pricing, which can affect market share, deposits continued wide market credit spreads, and our view that and revenues. national economic trends currently point to a • Our business and operating results can also be affected continuation of severe recessionary conditions in 2009 by widespread natural disasters, terrorist activities or followed by a subdued recovery. international hostilities, either as a result of the impact on • Legal and regulatory developments could have an impact the economy and capital and other financial markets on our ability to operate our businesses or our financial generally or on us or on our customers, suppliers or other condition or results of operations or our competitive counterparties specifically. position or reputation. Reputational impacts, in turn, • Also, risks and uncertainties that could affect the results could affect matters such as business generation and anticipated in forward-looking statements or from retention, our ability to attract and retain management, historical performance relating to our equity interest in liquidity, and funding. These legal and regulatory BlackRock, Inc. are discussed in more detail in developments could include: BlackRock’s filings with the SEC, including in the Risk – Changes resulting from the Emergency Economic Factors sections of BlackRock’s reports. BlackRock’s Stabilization Act of 2008, the American Recovery SEC filings are accessible on the SEC’s website and on and Reinvestment Act of 2009, and other or through BlackRock’s website at www.blackrock.com.

78 This material is referenced for informational purposes ITEM 7A – QUANTITATIVE AND QUALITATIVE only and should not be deemed to constitute a part of this DISCLOSURES ABOUT MARKET RISK report. This information is set forth in the Risk Management section In addition, our recent acquisition of National City of Item 7 of this Report. Corporation (“National City”) presents us with a number of risks and uncertainties related both to the acquisition ITEM 8–FINANCIAL STATEMENTS AND transaction itself and to the integration of the acquired businesses into PNC. These risks and uncertainties include the SUPPLEMENTARY DATA following: • The transaction may be substantially more expensive to Included below is the report of our current independent complete (including the required divestitures and the registered public accounting firm. The report of our previous integration of National City’s businesses) and the independent registered public accounting firm is included anticipated benefits, including anticipated cost savings under Item 15 of this Report. and strategic gains, may be significantly harder or take longer to achieve than expected or may not be achieved REPORT OF INDEPENDENT REGISTERED PUBLIC in their entirety as a result of unexpected factors or ACCOUNTING FIRM events. • Our ability to achieve anticipated results from this To the Board of Directors and Shareholders of The PNC transaction is dependent on the state going forward of the Financial Services Group, Inc. economic and financial markets, which have been under significant stress recently. Specifically, we may incur In our opinion, the accompanying consolidated balance sheets more credit losses from National City’s loan portfolio and the related consolidated statements of income, than expected. Other issues related to achieving shareholders’ equity, and cash flows present fairly, in all anticipated financial results include the possibility that material respects, the financial position of The PNC Financial deposit attrition or attrition in key client, partner and Services Group, Inc. and its subsidiaries (the “Company”) at other relationships may be greater than expected. December 31, 2008 and 2007, and the results of their • Litigation and governmental investigations currently operations and their cash flows for the years then ended in pending against National City, as well as others that may conformity with accounting principles generally accepted in be filed or commenced relating to National City’s the United States of America. Also in our opinion, the business and activities before the acquisition could Company maintained, in all material respects, effective adversely impact our financial results. internal control over financial reporting as of December 31, • Our ability to achieve anticipated results is also 2008, based on criteria established in Internal Control – dependent on our ability to bring National City’s Integrated Framework issued by the Committee of Sponsoring systems, operating models, and controls into conformity Organizations of the Treadway Commission (COSO). The with ours and to do so on our planned time schedule. The Company’s management is responsible for these financial integration of National City’s business and operations statements, for maintaining effective internal control over into PNC, which will include conversion of National financial reporting and for its assessment of the effectiveness City’s different systems and procedures, may take longer of internal control over financial reporting, included in than anticipated or be more costly than anticipated or Management’s Report on Internal Control over Financial have unanticipated adverse results relating to National Reporting appearing under Item 9A. Our responsibility is to City’s or PNC’s existing businesses. PNC’s ability to express opinions on these financial statements and on the integrate National City successfully may be adversely Company’s internal control over financial reporting based on affected by the fact that this transaction will result in our integrated audits. We conducted our audits in accordance PNC entering several markets where PNC did not with the standards of the Public Company Accounting previously have any meaningful retail presence. Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance In addition to the National City transaction, we grow our about whether the financial statements are free of material business from time to time by acquiring other financial misstatement and whether effective internal control over services companies. Acquisitions in general present us with financial reporting was maintained in all material respects. risks, in addition to those presented by the nature of the Our audits of the financial statements included examining, on business acquired, similar to some or all of those described a test basis, evidence supporting the amounts and disclosures above relating to the National City acquisition. in the financial statements, assessing the accounting principles used and significant estimates made by management, and

79 evaluating the overall financial statement presentation. Our of unauthorized acquisition, use, or disposition of the audit of internal control over financial reporting included company’s assets that could have a material effect on the obtaining an understanding of internal control over financial financial statements. reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating Because of its inherent limitations, internal control over effectiveness of internal control based on the assessed risk. financial reporting may not prevent or detect misstatements. Our audits also included performing such other procedures as Also, projections of any evaluation of effectiveness to future we considered necessary in the circumstances. We believe that periods are subject to the risk that controls may become our audits provide a reasonable basis for our opinions. inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may A company’s internal control over financial reporting is a deteriorate. process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of As described in Management’s Report on Internal Control financial statements for external purposes in accordance with over Financial Reporting, management has excluded National generally accepted accounting principles. A company’s City Corporation from its assessment of internal control over internal control over financial reporting includes those policies financial reporting as of December 31, 2008 because it was and procedures that (i) pertain to the maintenance of records acquired by the Company in a purchase business combination that, in reasonable detail, accurately and fairly reflect the on December 31, 2008. We have also excluded National City transactions and dispositions of the assets of the company; Corporation from our audit of internal control over financial (ii) provide reasonable assurance that transactions are reporting. National City Corporation’s total assets represented recorded as necessary to permit preparation of financial $136 billion of the related consolidated financial statement statements in accordance with generally accepted accounting amount as of December 31, 2008. principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of /s/ PricewaterhouseCoopers LLP management and directors of the company; and (iii) provide Pittsburgh, Pennsylvania reasonable assurance regarding prevention or timely detection March 2, 2009

80 CONSOLIDATED INCOME STATEMENT THE PNC FINANCIAL SERVICES GROUP, INC.

Year ended December 31 In millions, except per share data 2008 2007 2006 Interest Income Loans $4,138 $4,232 $3,203 Investment securities 1,746 1,429 1,049 Other 429 505 360 Total interest income 6,313 6,166 4,612 Interest Expense Deposits 1,485 2,053 1,590 Borrowed funds 1,005 1,198 777 Total interest expense 2,490 3,251 2,367 Net interest income 3,823 2,915 2,245 Noninterest Income Fund servicing 904 835 893 Asset management 686 784 1,420 Consumer services 623 692 611 Corporate services 704 713 626 Service charges on deposits 372 348 313 Net securities losses (206) (5) (207) Gain on BlackRock/MLIM transaction 2,078 Other 284 423 593 Total noninterest income 3,367 3,790 6,327 Total revenue 7,190 6,705 8,572 Provision for credit losses 1,517 315 124 Noninterest Expense Personnel 2,154 2,140 2,432 Occupancy 368 350 310 Equipment 359 311 303 Marketing 125 115 104 Other 1,424 1,380 1,294 Total noninterest expense 4,430 4,296 4,443 Income before minority interest and income taxes 1,243 2,094 4,005 Minority interest in income of BlackRock 47 Income taxes 361 627 1,363 Net income $ 882 $1,467 $2,595 Earnings Per Common Share Basic $ 2.50 $ 4.43 $ 8.89 Diluted $ 2.46 $ 4.35 $ 8.73 Average Common Shares Outstanding Basic 344 331 292 Diluted 347 335 297 See accompanying Notes To Consolidated Financial Statements.

81 CONSOLIDATED BALANCE SHEET THE PNC FINANCIAL SERVICES GROUP, INC.

December 31 In millions, except par value 2008 2007 Assets Cash and due from banks $ 4,471 $ 3,567 Federal funds sold and resale agreements (includes $1,072 measured at fair value at December 31, 2008) (a) 1,856 2,729 Trading securities 1,725 3,556 Interest-earning deposits with banks 14,859 346 Other short-term investments 1,025 227 Loans held for sale (includes $1,400 measured at fair value at December 31, 2008) (a) 4,366 3,927 Investment securities 43,473 30,225 Loans 175,489 68,319 Allowance for loan and lease losses (3,917) (830) Net loans 171,572 67,489 Goodwill 8,868 8,405 Other intangible assets 2,820 1,146 Equity investments 8,554 6,045 Other 27,492 11,258 Total assets $291,081 $138,920 Liabilities Deposits Noninterest-bearing $ 37,148 $ 19,440 Interest-bearing 155,717 63,256 Total deposits 192,865 82,696 Borrowed funds Federal funds purchased and repurchase agreements 5,153 9,774 Federal Home Loan Bank borrowings 18,126 7,065 Bank notes and senior debt 13,664 6,821 Subordinated debt 11,208 4,506 Other 4,089 2,765 Total borrowed funds 52,240 30,931 Allowance for unfunded loan commitments and letters of credit 344 134 Accrued expenses 3,949 4,330 Other 14,035 4,321 Total liabilities 263,433 122,412

Minority and noncontrolling interests in consolidated entities 2,226 1,654 Shareholders’ Equity Preferred stock (b) Common stock – $5 par value Authorized 800 shares, issued 452 and 353 shares 2,261 1,764 Capital surplus – preferred stock 7,918 Capital surplus – common stock and other 8,328 2,618 Retained earnings 11,461 11,497 Accumulated other comprehensive loss (3,949) (147) Common stock held in treasury at cost: 9 and 12 shares (597) (878) Total shareholders’ equity 25,422 14,854 Total liabilities, minority and noncontrolling interests, and shareholders’ equity $291,081 $138,920 (a) Amounts represent items for which the Corporation has elected the fair value option under SFAS 159. (b) Par value less than $.5 million at each date. See accompanying Notes To Consolidated Financial Statements.

82 CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY THE PNC FINANCIAL SERVICES GROUP, INC. Capital Capital Surplus - Shares Outstanding Surplus - Common Accumulated Other Common Common Preferred Stock and Retained Comprehensive Treasury In millions Stock Stock Stock Other Earnings Income (Loss) Stock Total Balance at January 1, 2006 (a) 293 $1,764 $1,299 $ 9,023 $ (267) $(3,256) $ 8,563 Net income 2,595 2,595 Net unrealized securities losses 149 149 Net unrealized losses on cash flow hedge derivatives 13 13 Additional minimum pension liability under SFAS 87 (1) (1) Other 33 Comprehensive income 2,759 Cash dividends declared Common (632) (632) Preferred (1) (1) BlackRock/MLIM transaction (b) 262 262 Treasury stock activity (c) (12) (121) (133) Tax benefit of stock option plans 29 29 Stock options granted 31 31 Effect of BlackRock equity transactions 27 27 Restricted stock/unit and incentive/performance unit share transactions 15 15 Net effect of adopting SFAS 158 (132) (132) Balance at December 31, 2006 (a) 293 $1,764 $1,651 $10,985 $ (235) $(3,377) $10,788 Net income 1,467 1,467 Net unrealized securities losses (76) (76) Net unrealized gains on cash flow hedge derivatives 188 188 Pension, other postretirement and postemployment benefit plan adjustments (29) (29) Other 55 Comprehensive income 1,555 Cash dividends declared – common (806) (806) Net effect of adopting FSP FAS 13-2 (149) (149) Treasury stock issued for acquisitions 56 872 3,147 4,019 Treasury stock activity – all other (8) (17) (648) (665) Tax benefit of stock option plans 18 18 Stock options granted 28 28 Effect of BlackRock equity transactions 53 53 Restricted stock/unit and incentive/performance unit share transactions 13 13 Balance at December 31, 2007 (a) 341 $1,764 $2,618 $11,497 $ (147) $ (878) $14,854 Net effect of adopting EITF 06-4 (12) (12) Net effect of adopting SFAS 157 and SFAS 159 17 17 Balance at January 1, 2008 341 $1,764 $2,618 $11,502 $ (147) $ (878) $14,859 Net income 882 882 Other comprehensive income (loss), net of tax Net unrealized securities losses (3,459) (3,459) Net unrealized gains on cash flow hedge derivatives 199 199 Pension, other postretirement and postemployment benefit plan adjustments (490) (490) Other (52) (52) Comprehensive income (loss) (2,920) Cash dividends declared Common (902) (902) Preferred (21) (21) Common stock activity – acquisition 99 497 5,419 5,916 Treasury stock activity 3 (110) 281 171 Preferred stock issuance – Series K 493 493 Preferred stock issuance – Series L 150 150 Preferred stock issuance – Series N (d) 7,275 7,275 TARP Warrant (d) 304 304 Tax benefit of stock option plans 17 17 Stock options granted 22 22 Effect of BlackRock equity transactions 43 43 Restricted stock/unit and incentive/performance unit share transactions 15 15 Balance at December 31, 2008 (a) 443 $2,261 $7,918 $8,328 $11,461 $(3,949) $ (597) $25,422

(a) The par value of our preferred stock outstanding was less than $.5 million at each date and, therefore, is excluded from this presentation. (b) Represents the portion of our gain on the BlackRock/MLIM transaction that was credited to capital surplus. (c) Our net treasury stock activity in 2006 was less than .1 million shares issued. (d) Issued to the US Department of Treasury on December 31, 2008 under the TARP Capital Purchase Program. See accompanying Notes To Consolidated Financial Statements.

83 CONSOLIDATED STATEMENT OF CASH FLOWS THE PNC FINANCIAL SERVICES GROUP, INC. Year ended December 31 In millions 2008 2007 2006 Operating Activities Net income $ 882 $ 1,467 $ 2,595 Adjustments to reconcile net income to net cash provided by operating activities Provision for credit losses 1,517 315 124 Depreciation, amortization and accretion 325 332 345 Deferred income taxes (benefit) (261) 78 752 Net securities losses 206 5 207 Loan related valuation adjustments 253 24 45 Gain on BlackRock/MLIM transaction (2,078) Net losses (gains) related to BlackRock LTIP shares adjustment (246) 127 12 Undistributed earnings of BlackRock (129) (207) (39) Visa redemption gain (95) Reversal of legal contingency reserve established in connection with an acquisition due to a settlement (61) Excess tax benefits from share-based payment arrangements (13) (15) (29) Net change in Trading securities and other short-term investments 1,459 (552) 156 Loans held for sale 50 (1,465) 435 Other assets (1,974) 37 173 Accrued expenses and other liabilities 5,140 (498) 83 Other 361 (64) (622) Net cash provided (used) by operating activities 7,414 (416) 2,159 Investing Activities Repayment of investment securities 4,246 4,374 3,667 Sales Investment securities 10,283 6,056 11,102 Visa shares 95 Loans 76 329 1,110 Purchases Investment securities (19,482) (15,884) (15,707) Loans (249) (2,747) (3,072) Net change in Federal funds sold and resale agreements 1,301 (1,147) (1,413) Loans (4,595) (2,160) (278) Net cash received from divestitures 377 59 Net cash received from (paid for) acquisitions 2,384 (2,602) (58) Purchases of corporate and bank-owned life insurance (350) (117) (425) Interest-earning deposits with Federal Reserve (6,234) Other (838) (800) (288) Net cash used by investing activities (12,986) (14,639) (5,362) Financing Activities Net change in Noninterest-bearing deposits 1,719 230 968 Interest-bearing deposits 2,065 1,769 4,940 Federal funds purchased and repurchase agreements (8,081) 4,057 (1,058) Federal Home Loan Bank short-term borrowings (2,000) 2,000 Other short-term borrowed funds 840 514 239 Sales/issuances Federal Home Loan Bank long-term borrowings 5,050 4,750 Bank notes and senior debt 3,626 4,523 1,964 Subordinated debt 759 943 Other long-term borrowed funds 96 250 279 Perpetual trust securities 369 490 489 Preferred stock – TARP 7,275 Preferred stock – Other 492 TARP Warrant 304 Treasury stock 375 253 343 Repayments/maturities Federal Home Loan Bank long-term borrowings (1,158) (232) (1,124) Bank notes and senior debt (3,815) (1,590) (2,200) Subordinated debt (140) (887) (471) Other long-term borrowed funds (156) (217) (26) Excess tax benefits from share-based payment arrangements 13 15 29 Acquisition of treasury stock (234) (963) (531) Cash dividends paid (923) (806) (633) Net cash provided by financing activities 6,476 15,099 3,208 Net Increase In Cash And Due From Banks 904 44 5 Cash and due from banks at beginning of period 3,567 3,523 3,518 Cash and due from banks at end of period $ 4,471 $ 3,567 $ 3,523 Cash Paid For Interest $ 2,145 $ 2,973 $ 2,376 Income taxes 706 659 471 Non-cash Items Issuance of common stock for acquisitions 5,916 4,019 Issuance of preferred stock for National City acquisition 150 Net increase in investment in BlackRock 126 180 3,179 Transfer from (to) loans held for sale to (from) loans, net 1,763 (288) (2,280) Transfer from trading securities to investment securities 599 Impact of FSP FAS 13-2, “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction” 15 252

See accompanying Notes To Consolidated Financial Statements.

84 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THE PNC FINANCIAL SERVICES GROUP,INC.

BUSINESS These reclassifications did not have a material impact on our PNC is one of the largest diversified financial services consolidated financial condition or results of operations. companies in the United States and is headquartered in Pittsburgh, Pennsylvania. Subsequent to the issuance of our 2006 Annual Report on Form 10-K, we determined that the Consolidated Statement of As described in Note 2 Acquisitions and Divestitures, on Cash Flows for the year ended December 31, 2006 should be December 31, 2008, PNC acquired National City Corporation restated. The cash flows related to the 2006 issuance of (“National City”), which increased our assets to a total of perpetual trust securities totaling $489 million had previously $291 billion and expanded our total consolidated deposits to been classified within the “Operating Activities” section of the $193 billion. Consolidated Statement of Cash Flows. We concluded that such cash flows should have been classified within the Prior to the acquisition, PNC had businesses engaged in retail “Financing Activities” section of the Consolidated Statement banking, corporate and institutional banking, asset of Cash Flows and, accordingly, restated these amounts in management, and global investment servicing, providing Amendment No. 1 thereto on Form 10-K/A dated February 4, many of its products and services nationally and others in 2008. The Consolidated Statement of Cash Flows included in PNC’s primary geographic markets located in Pennsylvania, these Consolidated Financial Statements reflects this New Jersey, Washington DC, Maryland, Virginia, Ohio, restatement. Kentucky and Delaware. PNC also provided certain investment servicing internationally. USE OF ESTIMATES We prepare the consolidated financial statements using National City’s primary businesses prior to its acquisition by financial information available at the time, which requires us PNC included commercial and retail banking, mortgage to make estimates and assumptions that affect the amounts financing and servicing, consumer finance and asset reported. Our most significant estimates pertain to our management, operating through an extensive network in Ohio, allowance for loan and lease losses, impaired loans, fair value Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, measurements and revenue recognition. Actual results may Pennsylvania and Wisconsin. National City also conducted differ from the estimates and the differences may be material selected consumer lending businesses and other financial to the consolidated financial statements. services on a nationwide basis. BUSINESS COMBINATIONS We record the net assets of companies that we acquire at their PNC is now in the process of integrating the business and estimated fair value at the date of acquisition and we include operations of National City with those of PNC. the results of operations of the acquired companies in our consolidated income statement from the date of acquisition. NOTE 1ACCOUNTING POLICIES We recognize as goodwill the excess of the acquisition price over the estimated fair value of the net assets acquired. The BASIS OF FINANCIAL STATEMENT PRESENTATION excess of the estimated fair value of net assets acquired over Our consolidated financial statements include the accounts of the acquisition price is allocated on a pro rata basis to reduce the parent company and its subsidiaries, most of which are the fair value of intangibles and non-current assets acquired. wholly owned, and certain partnership interests and variable interest entities. SUBSIDIARY STOCK TRANSACTIONS We recognize as income, when appropriate, any gain from the On December 31, 2008, we acquired National City. Our sale or issuance by subsidiaries of their stock to third parties. Consolidated Balance Sheet as of December 31, 2008 and The gain is the difference between our basis in the stock and other consolidated information presented as of that date in the the increase in the book value per share of the subsidiaries’ Consolidated Financial Statements includes the impact of equity and is recorded in noninterest income in the National City. See Note 2 Acquisition and Divestitures for Consolidated Income Statement. We provide applicable taxes additional information. on the gain.

We prepared these consolidated financial statements in SPECIAL PURPOSES ENTITIES accordance with accounting principles generally accepted in Special purpose entities (“SPEs”) are defined as legal entities the United States of America (“generally accepted accounting structured for a particular purpose. We use special purpose principles” or “GAAP”). We have eliminated intercompany entities in various legal forms to conduct normal business accounts and transactions. We have also reclassified certain activities. We review the structure and activities of special prior year amounts to conform with the 2008 presentation. purpose entities for possible consolidation under the guidance

85 contained in Financial Accounting Standards Board (“FASB”) Revenue earned on interest-earning assets including net Interpretation No. 46 (Revised 2003), “Consolidation of unearned income and the accretion of purchased loans is Variable Interest Entities” (“FIN 46R”) and Accounting recognized based on the constant effective yield of the Research Bulletin No. 51, “Consolidated Financial financial instrument. Statements,” as appropriate. Asset management fees are generally based on a percentage of A variable interest entity (“VIE”) is a corporation, partnership, the fair value of the assets under management and limited liability company, or any other legal structure used to performance fees are generally based on a percentage of the conduct activities or hold assets that either: returns on such assets. Certain performance fees are earned • Does not have equity investors with voting rights that upon attaining specified investment return thresholds and are can directly or indirectly make decisions about the recorded as earned. The caption asset management also entity’s activities through those voting rights or includes our share of the earnings of BlackRock under the similar rights, or equity method of accounting. • Has equity investors that do not provide sufficient Fund servicing fees are primarily based on a percentage of the equity for the entity to finance its activities without fair value of the fund assets and the number of shareholder additional subordinated financial support. accounts we service.

A VIE often holds financial assets, including loans or Service charges on deposit accounts are recognized when receivables, real estate or other property. earned. Brokerage fees and gains and losses on the sale of securities and certain derivatives are recognized on a trade- Based on the guidance contained in FIN 46R, we consolidate a date basis. VIE if we are considered to be its primary beneficiary. The primary beneficiary will absorb the majority of the expected We record private equity income or loss based on changes in losses from the VIE’s activities, is entitled to receive a the valuation of the underlying investments or when we majority of the entity’s residual returns, or both. Upon dispose of our interest. Dividend income from private equity consolidation of a VIE, we recognize all of the VIE’s assets, investments is generally recognized when received and liabilities and noncontrolling interests on our Consolidated interest income from subordinated private equity debt Balance Sheet. See Note 3 Variable Interest Entities for investments is recorded on an accrual basis. information about VIEs that we do not consolidate but in which we hold a significant variable interest. We recognize revenue from residential and commercial mortgage and other consumer loan servicing; securities and REVENUE RECOGNITION derivatives and foreign exchange trading; and securities We earn net interest and noninterest income from various underwriting activities as they are earned based on contractual sources, including: terms, as transactions occur or as services are provided. We • Lending, recognize any gains from the sale of loans upon cash • Securities portfolio, settlement of the transaction. • Asset management and fund servicing, • Customer deposits, When appropriate, revenue is reported net of associated • Loan servicing, expenses in accordance with GAAP. • Brokerage services, and CASH AND CASH EQUIVALENTS • Securities and derivatives trading activities, including Cash and due from banks are considered “cash and cash foreign exchange. equivalents” for financial reporting purposes.

We also earn revenue from selling loans and securities, and INVESTMENTS we recognize income or loss from certain private equity We have interests in various types of investments. The activities. accounting for these investments is dependent on a number of factors including, but not limited to, items such as: We earn fees and commissions from: • Ownership interest, • Issuing loan commitments, standby letters of credit • Our plans for the investment, and and financial guarantees, • The nature of the investment. • Selling various insurance products, • Providing treasury management services, Debt Securities • Providing merger and acquisition advisory and Debt securities are recorded on a trade-date basis. We classify related services, and debt securities as held to maturity and carry them at amortized • Participating in certain capital markets transactions. cost if we have the positive intent and ability to hold the securities to maturity. Debt securities that we purchase for short-term appreciation or other trading purposes are carried at

86 fair value and classified as trading securities and other short- income is amortized over the remaining life of the security as term investments on our Consolidated Balance Sheet. a yield adjustment. This amortization effectively offsets or Realized and unrealized gains and losses on trading securities mitigates the effect on interest income of the amortization of are included in other noninterest income. the premium or discount on the security on the date of transfer. Income earned from trading securities totaled $116 million in 2008, $116 million in 2007, and $62 million in 2006 and is Equity Securities and Partnership Interests included in Other interest income in the Consolidated Income We account for equity securities and equity investments other Statement. than BlackRock and private equity investments under one of the following methods: Debt securities not classified as held to maturity or trading are • Marketable equity securities are recorded on a trade- designated as securities available for sale and carried at fair date basis and are accounted for based on the value with unrealized gains and losses, net of income taxes, securities’ quoted market prices from a national reflected in accumulated other comprehensive income (loss). securities exchange. Dividend income on these securities is recognized in net interest income. Those We review all debt securities that are in an unrealized loss purchased with the intention of recognizing short- position for other-than-temporary impairment. We evaluate term profits are classified as trading and included in outstanding available-for-sale and held-to maturity securities trading securities and other short-term investments for other-than-temporary impairment on at least a quarterly on our Consolidated Balance Sheet. Both realized basis. An investment security is deemed impaired if the fair and unrealized gains and losses on trading securities value of the investment is less than its amortized cost. are included in noninterest income. Marketable Amortized cost includes adjustments (if any) made to the cost equity securities not classified as trading are basis of an investment for accretion, amortization, previous designated as securities available for sale with other-than-temporary impairments and hedging. After an unrealized gains and losses, net of income taxes, investment security is determined to be impaired, we evaluate reflected in accumulated other comprehensive whether the decline in value is other than temporary. When income (loss). Any unrealized losses that we have evaluating whether the impairment is other-than-temporary, determined to be other than temporary on securities we take into consideration whether or not we expect to receive classified as available for sale are recognized in all of the contractual cash flows from the investment based on current period earnings. factors that include, but are not limited to: the • For investments in limited partnerships, limited creditworthiness of the issuer and, in the case of non-agency liability companies and other investments that are not mortgage-backed securities, the historical and projected required to be consolidated, we use either the cost performance of the underlying collateral; the length of time method or the equity method of accounting. We use and extent that fair value has been less than amortized cost; the cost method for investments in which we are not and our ability and intent to hold the investment for a considered to have influence over the operations of sufficient amount of time to recover the unrealized losses. In the investee and when cost appropriately reflects our addition, we may also evaluate the business and financial economic interest in the underlying investment. outlook of the issuer, as well as broader industry and sector Under the cost method, there is no change to the cost performance indicators. Declines in the fair value of available basis unless there is an other than temporary decline for sale debt securities that are deemed other than temporary in value. If the decline is determined to be other than are recognized on our Consolidated Income Statement in net temporary, we write down the cost basis of the securities gains / (losses) in the period in which the investment to a new cost basis that represents determination is made. Such impairment charges include the realizable value. The amount of the write-down is impact of declines in both credit quality and liquidity. accounted for as a loss included in other noninterest income. Distributions received from income of We include all interest on debt securities, including investee on cost method investments are included in amortization of premiums and accretion of discounts in net interest income or noninterest income depending on interest income using the constant effective yield method. We the type of investment. We use the equity method for compute gains and losses realized on the sale of debt all other general and limited partner ownership securities available for sale on a specific security basis and interests and limited liability company investments. include them in net securities gains/(losses). Under the equity method, we record our equity ownership share of net income or loss of the investee In very limited situations, due to market conditions, in noninterest income. Investments described above management may elect to transfer certain debt securities from are included in the caption Equity investments on the the securities available for sale to the held-to-maturity Consolidated Balance Sheet. classification. In such cases, any unrealized gain or loss at the date of transfer included in accumulated other comprehensive

87 Private Equity Investments income. Our obligation to transfer BlackRock shares related to We report private equity investments, which include direct the LTIP programs and the resulting accounting are described investments in companies, affiliated partnership interests and in more detail in Note 2 Acquisitions and Divestitures. indirect investments in private equity funds, at estimated fair value. These estimates are based on available information and LOANS AND LEASES may not necessarily represent amounts that we will ultimately Loans are classified as held for investment when management realize through distribution, sale or liquidation of the has both the intent and ability to hold the loan for the investments. Fair value of publicly traded direct investments foreseeable future, or until maturity or payoff. In conjunction are determined using quoted market prices and are subject to with the acquisition of National City, management designated various discount factors for sales restrictions, when all acquired loans and leases as either held for investment or appropriate. The valuation procedures applied to direct held for sale based on its current intent and view of the investments in private companies include techniques such as foreseeable future. Management’s intent and view of the multiples of adjusted earnings of the entity, independent foreseeable future may change based on changes in business appraisals, anticipated financing and sale transactions with strategies, the economic environment and market conditions. third parties, or the pricing used to value the entity in a recent financing transaction. We value affiliated partnership interests Except as described below, loans held for investment are based on the underlying investments of the partnership using stated at the principal amounts outstanding, net of unearned procedures consistent with those applied to direct investments. income, unamortized deferred fees and costs on originated Indirect investments in private equity funds are valued based loans, and premiums or discounts on loans purchased. Interest on the financial statements that we receive from their on performing loans is accrued based on the principal amount managers. Due to the time lag in our receipt of the financial outstanding and recorded in interest income as earned using information and based on a review of investments and the constant effective yield method. Loan origination fees, valuation techniques applied, adjustments to the manager direct loan origination costs, and loan premiums and discounts provided value are made when available recent portfolio are deferred and accreted or amortized into net interest company information or market information indicates a income, over periods not exceeding the contractual life of the significant change in value from that provided by the manager loan. of the fund. We include all private equity investments on the Consolidated Balance Sheet in the caption Equity investments. Certain loans are accounted for at fair value in accordance Changes in the fair value of private equity investments are with Statement of Financial Accounting Standards No. recognized in noninterest income. (“SFAS”) 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 We consolidate private equity investments when we are the and 140,” with changes in the fair value reported in other general partner in a limited partnership and have determined noninterest income. The fair value of these loans was $43 that we have control of the partnership. The portion we do not million, or less than .5% of the total loan portfolio, at own is reflected in the caption Minority and noncontrolling December 31, 2008. interests in consolidated entities on the Consolidated Balance Sheet. In addition to originating loans, we also acquire loans through portfolio purchases or acquisitions of other financial services Investment in BlackRock, Inc. companies. For certain acquired loans that have experienced a We deconsolidated the assets and liabilities of BlackRock, deterioration of credit quality at the time of acquisition, we Inc. (“BlackRock”) from our Consolidated Balance Sheet follow the guidance contained in AICPA Statement of effective September 29, 2006 and now account for our Position 03-3, “Accounting for Certain Loans or Debt investment in BlackRock under the equity method of Securities Acquired in a Transfer” (“SOP 03-3”). Under SOP accounting. The investment in BlackRock is reflected on our 03-3, acquired loans are to be recorded at fair value absent the Consolidated Balance Sheet in the caption Equity investments, carry over of any existing valuation allowances. Evidence of while our equity in earnings of BlackRock is reported on our credit quality deterioration as of the purchase date may Consolidated Income Statement in the caption Asset include information and statistics such as bankruptcy events, management. FICO scores, past due status, current borrower credit scores, and current loan-to-value (LTV). We review the loans We mark to market our obligation to transfer BlackRock acquired for evidence of credit quality deterioration at the date shares related to certain BlackRock long-term incentive plan of acquisition and determine if it is probable that we will be (“LTIP”) programs. This obligation is classified as a free unable to collect all amounts due, including both principal and standing derivative as disclosed in Note 17 Financial interest, according to the loan’s contractual terms. When both Derivatives. As we transfer the shares for payouts under such conditions exist, we estimate the amount and timing of LTIP programs, we recognize a gain or loss on those shares. undiscounted expected cash flows for each loan either The impact of those transactions is shown on a net basis on individually or on a pool basis. We estimate the cash flows our Consolidated Income Statement in Other noninterest expected to be collected at acquisition using internal and third

88 party models that incorporate management’s best estimate of compliance with specific rules and regulations of the relevant current key assumptions, such as default rates, loss severity regulatory authorities. Where the transferor is not a depository and payment speeds. Collateral values are also incorporated institution, legal isolation is accomplished through utilization into cash flow estimates. Late fees, which are contractual but of a two-step securitization structure. not expected to be collected, are excluded from expected future cash flows. The accretable yield is calculated based SFAS 140 “Accounting for Transfers and Servicing of upon the difference between the undiscounted expected future Financial Assets and Extinguishments of Liabilities” requires cash flows of the loans and the fair value of the loan as a true sale analysis of the treatment of the transfer under state determined under the provisions of SFAS 157, Fair Value law as if the transferring equity was a debtor under the Measurement. This amount is accreted into income over the bankruptcy code. A true sale legal analysis includes several life of the loan on a level yield basis. Subsequent increases in legally relevant factors, such as the nature and level of expected cash flows are recognized prospectively through an recourse to the transferor, and the amount and nature of adjustment of the loan’s or pool’s yield over its remaining life. retained interests in the loans sold. The analytical conclusion Subsequent decreases in expected cash flows that are as to a true sale is never absolute and unconditional, but attributable, at least in part, to credit quality are recognized as contains qualifications based on the inherent equitable powers impairments through a change to the provision for credit of a bankruptcy court, as well as the unsettled state of the losses resulting in an increase in the allowance for loan and common law. Once the legal isolation test has been met under lease losses. SFAS 140, other factors concerning the nature and extent of the transferor’s control over the transferred assets are taken The nonaccretable yield represents the difference between the into account in order to determine whether derecognition of expected undiscounted cash flows of the loans and the total assets is warranted, including whether the SPE has complied contractual cash flows (including the principal and interest) at with rules concerning qualifying special-purpose entities. acquisition and throughout the remaining lives of the loans. In a securitization, the trusts or SPE issues beneficial interests We also provide financing for various types of equipment, in the form of senior and subordinated asset-backed securities aircraft, energy and power systems, and rolling stock and backed or collateralized by the assets sold to the trust. The automobiles through a variety of lease arrangements. Direct senior classes of the asset-backed securities typically receive financing leases are carried at the aggregate of lease payments investment grade credit ratings at the time of issuance. These plus estimated residual value of the leased property, less ratings are generally achieved through the creation of lower- unearned income. Leveraged leases, a form of financing lease, rated subordinated classes of asset-backed securities, as well are carried net of nonrecourse debt. We recognize income as subordinated interests. In certain cases, we may retain a over the term of the lease using the interest method. Lease portion or all of the securities issued, interest-only strips, one residual values are reviewed for other than temporary or more subordinated tranches, servicing rights and, in some impairment on a quarterly basis. Gains or losses on the sale of cases, cash reserve accounts. leased assets are included in other noninterest income while valuation adjustments on lease residuals are included in other For credit card securitizations, PNC’s continued involvement noninterest expense. in the securitized assets includes maintaining an undivided, pro rata interest in all credit card assets that are in the trust, When loans are redesignated from held for investment to held referred to as seller’s interest. The seller’s interest ranks for sale, specific reserves and allocated pooled reserves equally with the investors’ interests in the trust. As the amount included in the allowance for loan and lease losses are of the assets in the securitized pool fluctuates due to customer charged-off to reduce the basis of the loans to lower of cost or payments, purchases, cash advances, and credit losses, the market value. carrying amount of the seller’s interest will vary. However, PNC is required to maintain its seller’s interest at a minimum LOAN SALES,LOAN SECURITIZATIONS AND RETAINED level of 5% of the initial invested amount in each series to INTERESTS ensure sufficient assets are available for allocation to the We recognize the sale of loans or other financial assets when investors’ interests. the transferred assets are legally isolated from our creditors and the appropriate accounting criteria are met. We also sell In accordance with SFAS 140, securitized loans are removed mortgage and other loans through secondary market from the balance sheet and a net gain or loss is recognized in securitizations. Securitization of financial assets represents a noninterest income at the time of initial sale, and each source of funding. In a securitization, financial assets are subsequent sale for revolving securitization structures. Gains transferred into trusts or to special-purpose entities (SPEs) in or losses recognized on the sale of the loans depend on the transactions which are effective in legally isolating the assets allocation of carrying value between the loans sold and the from PNC. Pools of credit card, automobile, and mortgage retained interests, based on their relative fair market values at loans have been securitized. Where the transferor is a the date of sale. We generally estimate the fair value of the depository institution, legal isolation is accomplished through retained interests based on the present value of future expected

89 cash flows using assumptions as to discount rates, interest elected to fair value certain commercial mortgage loans held rates, prepayment speeds, credit losses and servicing costs, if for sale. Under SFAS 159, changes in the fair value of these applicable. loans are measured and recorded in other noninterest income each period. See Note 8 Fair Value for additional information. Our loan sales and securitizations are generally structured Also, we elected fair value for residential real estate loans held without recourse to us and with no restrictions on the retained for sale or securitization acquired from National City. interests with the exception of loan sales to certain US government chartered entities. Interest income with respect to loans held for sale classified as performing is accrued based on the principal amount When we are obligated for loss-sharing or recourse in a sale, outstanding at a constant effective yield. our policy is to record such liabilities at fair value upon closing of the transaction based on the guidance contained in In certain circumstances, loans designated as held for sale may FIN 45, “Guarantor’s Accounting and Disclosure be transferred to the loan portfolio based on a change in Requirements for Guarantees, Including Indirect Guarantees strategy. We transfer these loans to the portfolio at the lower of Indebtedness of Others,” or as a contingent liability of cost or fair market value; however, any loans designated recognized at inception of the guarantee under SFAS 5, under SFAS 159 will remain at fair value. “Accounting for Contingencies.” NONPERFORMING ASSETS We originate, sell and service mortgage loans under the Nonperforming assets include: Federal National Mortgage Association (“FNMA”) Delegated • Nonaccrual loans, Underwriting and Servicing (“DUS”) program. Under the • Troubled debt restructurings, and provisions of the DUS program, we participate in a loss- • Foreclosed assets. sharing arrangement with FNMA. We participate in a similar program with the Federal Home Loan Mortgage Corporation Measurement of delinquency and past due status are based on (“FHLMC”). Refer to Note 25 Commitments and Guarantees the contractual terms of each loan. for more information about our obligations related to sales of loans under these programs. A loan acquired and accounted for under SOP 03-3 is reported as an accruing loan and a performing asset as long as the In securitization transactions, we classify securities retained as remaining future expected undiscounted cash flows exceed the debt securities available for sale or other assets, depending on carrying value of the loan. the form of the retained interest. Retained interests that are subject to prepayment risk are reviewed on a quarterly basis We generally classify commercial loans as nonaccrual when for impairment. If the fair value of the retained interests is we determine that the collection of interest or principal is below its carrying amount and the decline is determined to be doubtful or when a default of interest or principal has existed other than temporary, then the decline is reflected as a charge for 90 days or more and the loans are not well-secured or in in other noninterest income. the process of collection. When the accrual of interest is discontinued, any accrued but uncollected interest previously LOANS HELD FOR SALE included in net interest income is reversed. We charge off We designate loans and related unfunded loan commitments small business commercial loans less than $1 million at 120 as held for sale when we have a positive intent to sell them. days after transfer to nonaccrual status. We charge off other We transfer loans to the loans held for sale category at the nonaccrual loans based on the facts and circumstances of the lower of cost or fair market value. At the time of transfer, individual loans. write-downs on the loans and related unfunded loan commitments are recorded as charge-offs or as a reduction in Subprime mortgage loans for first liens with a loan to value the liability for unfunded commitments. We establish a new ratio of greater than 90% and second liens are classified as cost basis upon transfer except for certain residential and nonaccrual at 90 days past due. commercial mortgages held for sale discussed below. Any subsequent lower of cost or market adjustment is determined Most consumer loans and lines of credit, not secured by on an individual loan and unfunded loan commitment basis residential real estate, are charged off after 120 to 180 days and is recognized as a valuation allowance with any charges past due. Generally, they are not placed on non-accrual status. included in other noninterest income. Gains or losses on the sale of these loans and/or related unfunded loan commitments Home equity installment loans and lines of credit, as well as are included in other noninterest income when realized. residential mortgage loans, that are well secured by residential real estate are classified as nonaccrual at 180 days past due or Effective January 1, 2008, we adopted SFAS 159, “The Fair if a partial write-down has occurred, consistent with Value Option for Financial Assets and Financial Liabilities – regulatory guidance. These loans are considered well secured Including an amendment of FASB Statement No. 115”, and if the fair market value of the property, less 15% to cover

90 potential foreclosure expenses, is greater than or equal to the flows associated with a loan are less than its net carrying recorded investment in the loan including any superior liens. value, a charge-off is recognized against the allowance for A fair market value assessment of the property is initiated loan losses. when the loan becomes 90 to 120 days past due. Subsequently, foreclosed assets are valued at the lower of the Home equity installment loans and lines of credit and amount recorded at acquisition date or the current market residential real estate loans that are not well secured, but are in value less estimated disposition costs. Valuation adjustments the process of collection, are charged-off at 180 days past due. on these assets and gains or losses realized from disposition of This is consistent with the charge-off policy for home equity such property are reflected in noninterest expense. lines of credit. These loans are recorded at the lower of cost or market value, less liquidation costs, and the unsecured portion ALLOWANCE FOR LOAN AND LEASE LOSSES of these loans is charged off in accordance with regulatory We maintain the allowance for loan and lease losses at a level guidelines. The remaining portion of the loan is placed on that we believe to be adequate to absorb estimated probable nonaccrual status. credit losses inherent in the loan portfolio as of the balance sheet date. Our determination of the adequacy of the Additionally, residential mortgage loans serviced by others allowance is based on periodic evaluations of the loan and under master servicing arrangements and primary-serviced lease portfolios and other relevant factors. This evaluation is residential loans not in process of foreclosure are also inherently subjective as it requires material estimates, all of classified as nonaccrual at 180 days past due or if a partial which may be susceptible to significant change, including, write-down has occurred. among others: • Probability of default, A loan is categorized as a troubled debt restructuring (“TDR”) • Loss given default, if a significant concession is granted due to deterioration in • Exposure at date of default, the financial condition of the borrower. TDRs may include • Amounts and timing of expected future cash flows on certain modifications of terms of loans, receipts of assets from impaired loans, debtors in partial or full satisfaction of loans, or a combination • Value of collateral, of both. Restructured loans classified as TDRs are accounted • Historical loss exposure, and for in accordance with SFAS 15, “Accounting by Debtors and • Amounts for changes in economic conditions that Creditors for Troubled Debt Restructurings”, and SFAS 114, may not be reflected in historical results. “Accounting by Creditors for Impairment of a Loan.” In determining the adequacy of the allowance for loan and Nonperforming loans are generally not returned to performing lease losses, we make specific allocations to impaired loans, status until the obligation is brought current and the borrower allocations to pools of watchlist and non-watchlist loans, and has performed in accordance with the contractual terms for a allocations to consumer and residential mortgage loans. We reasonable period of time and collection of the contractual also allocate reserves to provide coverage for probable losses principal and interest is no longer doubtful. Nonaccrual inherent in the portfolio at the balance sheet date based upon commercial and commercial real estate loans and troubled current market conditions, which may not be reflected in debt restructurings are designated as impaired loans under historical loss data. While allocations are made to specific SFAS 114. loans and pools of loans, the total reserve is available for all credit losses. Foreclosed assets are comprised of any asset seized or property acquired through a foreclosure proceeding or Specific allocations are made to significant individual acceptance of a deed-in-lieu of foreclosure. Other real estate impaired loans and are determined in accordance with SFAS owned (OREO) is comprised principally of commercial and 114, with impairment measured based on the present value of residential real estate properties obtained in partial or total the loan’s expected cash flows, observable market price of the satisfaction of loan obligations. Depending on various state loan or the fair value of collateral. We establish a pooled statutes, legal proceedings are initiated on or about the 65th reserve on all other impaired loans based on their loss given day of delinquency. If no other remedies arise from the legal default credit risk ratings. proceedings, the final outcome will result in the sheriff’s sale of the property. When we acquire the deed, the transfer of Allocations to loan pools are developed by product and loans to other real estate owned will be completed. Property industry with estimated losses based on probability of default obtained in satisfaction of a loan is recorded at the estimated and loss given default credit risk ratings by using historical fair value less anticipated selling costs. We estimate market loss trends and our judgment concerning those trends and values primarily based on appraisals, when available, or other relevant factors. These factors may include, among quoted market prices on liquid assets. Anticipated recoveries others: from private mortgage insurance and government guarantees • Actual versus estimated losses, are also considered in evaluating the potential impairment of • Regional and national economic conditions, and loans at the date of transfer. When the anticipated future cash • Industry and portfolio concentrations.

91 Loss factors are based on industry and/or internal experience mortgage loans underlying these servicing rights with regard and may be adjusted for significant factors that, based on our to market inputs used in determining fair value and how we judgment, impact the collectibility of the portfolio as of the manage the risks inherent in the commercial mortgage balance sheet date. Consumer and residential mortgage loan servicing rights assets. Specific risk characteristics of allocations are made at a total portfolio level based on commercial mortgages include loan type, currency or historical loss experience adjusted for current risk factors. exchange rate, interest rates, expected cash flows and changes in the cost of servicing. We record these servicing assets as While our pool reserve methodologies strive to reflect all risk other intangible assets and amortize them over their estimated factors, there continues to be a certain element of uncertainty lives based on estimated net servicing income. On a quarterly associated with, but not limited to, potential imprecision in the basis, we test the assets for impairment by categorizing the estimation process due to the inherent time lag of obtaining pools of assets underlying the servicing rights into various information. We provide additional reserves that are designed stratum. If the estimated fair value of the assets is less than the to provide coverage for losses attributable to such risks. These carrying value, an impairment loss is recognized and a reserves also include factors which may not be directly valuation reserve is established. Subsequent measurement of measured in the determination of specific or pooled reserves. servicing rights for home equity lines and loans, automobile Such factors include: loans and credit card loans also follow the amortization • Credit quality trends, method. • Recent loss experience in particular segments of the portfolio, For subsequent measurement of servicing rights for residential • Ability and depth of lending management, and real estate loans, the fair value method is used. This election • Changes in risk selection and underwriting standards. was made to be consistent with our risk management strategy to hedge the fair value of these assets. We manage this risk by ALLOWANCE FOR UNFUNDED LOAN COMMITMENTS AND hedging the fair value of this asset with derivatives which are LETTERS OF CREDIT expected to increase in value when the value of the servicing We maintain the allowance for unfunded loan commitments right declines. The fair value of these servicing rights is and letters of credit at a level we believe is adequate to absorb estimated by using a cash flow valuation model which estimated probable losses related to these unfunded credit calculates the present value of estimated future net servicing facilities. We determine the adequacy of the allowance based cash flows, taking into consideration actual and expected on periodic evaluations of the unfunded credit facilities mortgage loan prepayment rates, discount rates, servicing including an assessment of the probability of commitment costs, and other economic factors which are determined based usage, credit risk factors for loans outstanding to these same on current market conditions. Expected mortgage loan customers, and the terms and expiration dates of the unfunded prepayment assumptions are derived from an internal credit facilities. The allowance for unfunded loan proprietary model and consider empirical data drawn from the commitments and letters of credit is recorded as a liability on historical performance of PNC’s managed portfolio and the Consolidated Balance Sheet. Net adjustments to the adjusted for current market conditions. On a quarterly basis, allowance for unfunded loan commitments and letters of management obtains market value quotes from two credit are included in the provision for credit losses. independent brokers that reflect current conditions in the MORTGAGE AND OTHER SERVICING RIGHTS secondary market and any recently executed servicing We provide servicing under various loan servicing contracts transactions. Management compares its valuation to the for commercial, residential, home equity, automobile and quoted range of market values to determine if its estimated credit card loans. These contracts are either purchased in the fair value is reasonable in comparison to market participant open market or retained as part of a loan securitization or loan valuations. If the estimated fair value of PNC’s residential sale. All newly acquired or originated servicing rights are servicing rights is outside the range, management re-evaluates initially measured at fair value. Fair value is based on the its model inputs and assumptions to derive a fair value which present value of the expected future cash flows, including falls within the range of market observed values. assumptions as to: • Interest rates for escrow and deposit balance Servicing fees are recognized as they are earned and are earnings, reported net of amortization expense and any impairments in • Discount rates, the line item Corporate services on the Consolidated Income • Stated note rates, Statement. • Estimated prepayment speeds, and • Estimated servicing costs. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments and the methods and For subsequent measurements, we have elected to account for assumptions used in estimating fair value amounts and our commercial mortgage loan servicing rights as a class of financial assets and liabilities for which fair value was elected assets and use the amortization method. This election was based on the guidance in SFAS 159 are detailed in Note 8 Fair made based on the unique characteristics of the commercial Value.

92 GOODWILL AND OTHER INTANGIBLE ASSETS TREASURY STOCK We test goodwill and indefinite-lived intangible assets for We record common stock purchased for treasury at cost. At impairment at least annually, or when events or changes in the date of subsequent reissue, the treasury stock account is circumstances indicate the assets might be impaired. Finite- reduced by the cost of such stock on the first-in, first-out lived intangible assets are amortized to expense using basis. accelerated or straight-line methods over their respective estimated useful lives. We review finite-lived intangible assets DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES for impairment when events or changes in circumstances We use a variety of financial derivatives as part of our overall indicate that the asset’s carrying amount may not be asset and liability risk management process to help manage recoverable from undiscounted future cash flows or it may interest rate, market and credit risk inherent in our business exceed its fair value. activities. Interest rate and total return swaps, interest rate caps and floors and futures contracts are the primary instruments DEPRECIATION AND AMORTIZATION we use for interest rate risk management. For financial reporting purposes, we depreciate premises and equipment, net of salvage value, principally using the straight- Financial derivatives involve, to varying degrees, interest rate, line method over their estimated useful lives. market and credit risk. We manage these risks as part of our asset and liability management process and through credit We use estimated useful lives for furniture and equipment policies and procedures. We seek to minimize counterparty ranging from one to 10 years, and depreciate buildings over an credit risk by entering into transactions with only high-quality estimated useful life of up to 40 years. We amortize leasehold institutions, establishing credit limits, and generally requiring improvements over their estimated useful lives of up to 15 bilateral netting and collateral agreements. years or the respective lease terms, whichever is shorter. We recognize all derivative instruments at fair value as either We purchase, as well as internally develop and customize, other assets or other liabilities on the Consolidated Balance certain software to enhance or perform internal business Sheet. The accounting for changes in the fair value of a functions. Software development costs incurred in the derivative instrument depends on whether it has been planning and post-development project stages are charged to designated and qualifies as part of a hedging relationship. For noninterest expense. Costs associated with designing software derivatives not designated as an accounting hedge, the gain or configuration and interfaces, installation, coding programs and loss is recognized in noninterest income. testing systems are capitalized and amortized using the straight-line method over periods ranging from one to seven For those derivative instruments that are designated and years. qualify as accounting hedges, we must designate the hedging instrument, based on the exposure being hedged, as a fair REPURCHASE AND RESALE AGREEMENTS value hedge or a cash flow hedge. We have no derivatives that Generally, repurchase and resale agreements are treated as hedge the net investment in a foreign operation. collateralized financing transactions and are carried at the amounts at which the securities will be subsequently We formally document the relationship between the hedging reacquired or resold, including accrued interest, as specified in instruments and hedged items, as well as the risk management the respective agreements. Our policy is to take possession of objective and strategy, before undertaking an accounting securities purchased under agreements to resell. We monitor hedge. To qualify for hedge accounting, the derivatives and the market value of securities to be repurchased and resold related hedged items must be designated as a hedge at and additional collateral may be obtained where considered inception of the hedge relationship. For accounting hedge appropriate to protect against credit exposure. relationships, we formally assess, both at the inception of the hedge and on an ongoing basis, if the derivatives are highly Effective January 1, 2008, we elected to account for structured effective in offsetting designated changes in the fair value or resale agreements at fair value. The fair value for structured cash flows of the hedged item. If it is determined that the resale agreements is determined using a model which includes derivative instrument is not highly effective, hedge accounting observable market data as inputs. is discontinued.

OTHER COMPREHENSIVE INCOME For derivatives that are designated as fair value hedges (i.e., Other comprehensive income consists, on an after-tax basis, hedging the exposure to changes in the fair value of an asset primarily of unrealized gains or losses on investment or a liability attributable to a particular risk), changes in the securities classified as available for sale and derivatives fair value of the hedging instrument are recognized in earnings designated as cash flow hedges, and changes in pension, other and offset by recognizing changes in the fair value of the postretirement and postemployment benefit plan liability hedged item attributable to the hedged risk. To the extent the adjustments. Details of each component are included in Note changes in fair value of the derivative does not offset the 20 Other Comprehensive Income. change in fair value of the hedged item, the difference or

93 ineffectiveness is reflected in the income statement in the On January 1, 2006, we adopted SFAS 155, which, among same financial statement category as the hedged item. other provisions, permits a fair value election for hybrid financial instruments requiring bifurcation on an For derivatives designated as cash flow hedges (i.e., hedging instrument-by-instrument basis. Beginning January 1, 2006, the exposure to variability in expected future cash flows), the we elected to account for certain previously bifurcated hybrid effective portions of the gain or loss on derivatives are instruments and certain newly acquired hybrid instruments reported as a component of accumulated other comprehensive under this fair value election on an instrument-by-instrument income (loss) and subsequently reclassified to interest income basis. As such, certain previously reported embedded in the same period or periods during which the hedged derivatives are reported with their host contracts at fair value transaction affects earnings. The change in fair value of any in loans or other borrowed funds. ineffective portion of the hedging derivative is recognized immediately in noninterest income. We enter into commitments to make residential real estate loans and loans whereby the interest rate on the loan is set We discontinue hedge accounting when it is determined that prior to funding (interest rate lock commitments). We also the derivative is no longer qualifying as an effective hedge; enter into commitments to purchase or sell commercial the derivative expires or is sold, terminated or exercised; or mortgage loans. Loan commitments and interest rate lock the derivative is de-designated as a fair value or cash flow commitments for loans to be classified as held for sale and hedge or, for a cash flow hedge, it is no longer probable that commitments to buy or sell mortgage loans are accounted for the forecasted transaction will occur by the end of the as free-standing derivatives and are recorded at fair value in originally specified time period. If we determine that the other assets or other liabilities on the Consolidated Balance derivative no longer qualifies as a fair value or cash flow Sheet. Any gain or loss from the change in fair value after the hedge and hedge accounting is discontinued, the derivative inception of the commitment is recognized in noninterest will continue to be recorded on the balance sheet at its fair income. value with changes in fair value included in current earnings. INCOME TAXES For a discontinued fair value hedge, the previously hedged We account for income taxes under the asset and liability item is no longer adjusted for changes in fair value. method. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax When hedge accounting is discontinued because it is no longer bases of assets and liabilities and are measured using the probable that a forecasted transaction will occur, the enacted tax rates and laws that we expect will apply at the derivative will continue to be recorded on the balance sheet at time when we believe the differences will reverse. The its fair value with changes in fair value included in current realization of deferred tax assets requires an assessment to earnings, and the gains and losses in accumulated other determine the realization of such assets. Realization refers to comprehensive income (loss) will be recognized immediately the incremental benefit achieved through the reduction in into earnings. When we discontinue hedge accounting because future taxes payable or refunds receivable from the deferred the hedging instrument is sold, terminated or no longer tax assets, assuming that the underlying deductible differences designated, the amount reported in accumulated other and carryforwards are the last items to enter into the comprehensive income (loss) up to the date of sale, determination of future taxable income. We establish a termination or de-designation, continues to be reported in valuation allowance for tax assets when it is more likely than other comprehensive income or loss until the forecasted not that they will not be realized, based upon all available transaction affects earnings. We did not terminate any cash positive and negative evidence. flow hedges in 2008, 2007 or 2006 due to a determination that a forecasted transaction was no longer probable of occurring. EARNINGS PER COMMON SHARE We calculate basic earnings per common share by dividing net We occasionally purchase or originate financial instruments income adjusted for preferred stock dividends declared by the that contain an embedded derivative. At the inception of the weighted-average number of shares of common stock transaction, we assess if the economic characteristics of the outstanding. embedded derivative are clearly and closely related to the economic characteristics of the financial instrument (host Diluted earnings per common share are based on net income contract), whether the financial instrument that embodied both available to common stockholders. We increase the weighted- the embedded derivative and the host contract are measured at average number of shares of common stock outstanding by the fair value with changes in fair value reported in earnings, and assumed conversion of outstanding convertible preferred stock whether a separate instrument with the same terms as the and debentures from the beginning of the year or date of embedded instrument would not meet the definition of a issuance, if later, and the number of shares of common stock derivative. If the embedded derivative does not meet these that would be issued assuming the exercise of stock options three conditions, the embedded derivative would qualify as a and warrants and the issuance of incentive shares using the derivative and be recorded apart from the host contract and treasury stock method. These adjustments to the weighted- carried at fair value with changes recorded in current earnings. average number of shares of common stock outstanding are

94 made only when such adjustments will dilute earnings per Endorsement Split-Dollar Life Insurance Arrangements,” on common share. January 1, 2008. EITF 06-4 requires the recognition of a liability and related compensation costs for endorsement split- STOCK-BASED COMPENSATION dollar life insurance arrangements that provide a benefit to In December 2004, the FASB issued SFAS 123R “Share- retired employees. The adoption of the guidance resulted in a Based Payment,” which requires compensation cost related to reduction of retained earnings at January 1, 2008 of share-based payments to employees to be recognized in the approximately $12 million and did not have a material effect financial statements based on their fair value. We adopted on our future results of operations or financial position. SFAS 123R effective January 1, 2006, using the modified prospective method of transition, which required the In February 2008, the FASB issued FSP FAS 140-3, provisions of SFAS 123R be applied to new awards and “Accounting for Transfers of Financial Assets and Repurchase awards modified, repurchased or cancelled after the effective Financing Transactions.” This FSP provides guidance on how date. It also required changes in the timing of expense the transferor and transferee should separately account for a recognition for awards granted to retirement-eligible transfer of a financial asset and a related repurchase financing employees and clarified the accounting for the tax effects of if certain criteria are met. This guidance will be effective stock awards. The adoption of SFAS 123R did not have a January 1, 2009 for PNC and will impact our accounting for significant impact on our consolidated financial statements. structured repurchase agreements entered into after that date.

See Note 16 Stock-Based Compensation Plans for additional In March 2008, the FASB issued SFAS 161, “Disclosures information. about Derivative Instruments and Hedging Activities.” This standard will require revisions to our derivative disclosures to RECENT ACCOUNTING PRONOUNCEMENTS provide greater transparency as to the use of derivative We adopted the guidance in Staff Accounting Bulletin No. instruments and hedging activities. This guidance will be (“SAB”) 109 on January 1, 2008. SAB 109 provides the SEC effective for interim and annual financial statements beginning staff’s view that the expected future cash flows related to with the first quarter 2009 Form 10-Q. servicing should be included in the fair value measurement of all written loan commitments that are accounted for at fair In April 2008, the FASB issued FSP FAS 142-3, value through earnings. The impact of this guidance on our “Determination of the Useful Life of Intangible Assets.” This consolidated financial statements has not been significant. FSP provides guidance as to factors considered in developing renewal or extension assumptions used to determine the useful We adopted SFAS 157, “Fair Value Measurements” on life of a recognized intangible asset under SFAS 142, January 1, 2008. SFAS 157 defines fair value, establishes a “Goodwill and Other Intangible Assets.” This guidance will framework for measuring fair value, and expands disclosures be effective January 1, 2009 for PNC. The adoption is not about fair value measurements. The FASB’s Financial Staff expected to have a material effect on our results of operations Position “FSP” FAS 157-2, “Effective Date of FASB or financial position. Statement No. 157”, defers until January 1, 2009, the application of SFAS 157 to nonfinancial assets and In May 2008, the FASB issued SFAS 162, “The Hierarchy of nonfinancial liabilities not recognized or disclosed at least Generally Accepted Accounting Principles.” This standard annually at fair value. This includes nonfinancial assets and formalizes minor changes in prioritizing accounting principles nonfinancial liabilities initially measured at fair value in a used in the preparation of financial statements that are business combination or other new basis event, but not presented in conformity with GAAP. measured at fair value in subsequent periods. See Note 8 Fair Value for additional information. In May 2008, the FASB issued SFAS 163, “Accounting for Financial Guarantee Insurance Contracts – an Interpretation of As noted above, we adopted SFAS 159 on January 1, 2008. FASB Statement No. 60.” This standard changes the current SFAS 159 permits entities to choose to measure many practice of accounting for financial guarantee insurance financial instruments and certain other assets and liabilities at contracts by insurance companies including the recognition fair value. We elected to fair value certain commercial and measurement of premium revenue, claim liabilities and mortgage loans classified as held for sale and certain other enhances related disclosure requirements. This guidance will financial instruments. We also elected fair value for residential be effective for interim and annual financial statements real estate loans held for sale or securitization acquired from beginning in 2009. The adoption of this guidance is not National City. See Note 8 Fair Value for additional expected to have a material effect on our results of operations information. or financial position.

As required, we adopted the provisions of Emerging Issues In May 2008, the FASB issued FSP APB 14-1, “Accounting Task Force Issue No. (“EITF”) 06-4, “Accounting for for Convertible Debt Instruments That May Be Settled in Cash Deferred Compensation and Postretirement Benefit Aspects of Upon Conversion (Including Partial Cash Settlement).” This

95 FSP clarifies that certain convertible debt instruments should FASB Statement No. 140, “Accounting for Transfers and be separately accounted for as liability and equity Servicing of Financial Assets and Extinguishments of components. This guidance will be effective beginning with Liabilities,” and (2) the exceptions from applying FIN 46R to our first quarter 2009 Form 10-Q. We do not expect the qualifying SPEs. This proposed Statement would also revise adoption of this guidance to have a material effect on our and clarify the derecognition requirements for transfers of results of operations or financial position. financial assets, establish conditions for transfer of a portion of a financial asset, and requiring the initial measurement of In June 2008, the FASB issued FSP EITF 03-6-1, beneficial interests that are received as proceeds in connection “Determining Whether Instruments Granted in Share-Based with transfers of financial assets at fair value. This proposed Payment Transactions Are Participating Securities.” This FSP guidance would be effective for PNC beginning January 1, clarifies that unvested share-based payment awards that 2010. contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and should In October 2008, the FASB issued FSP FAS 157-3, be included in the calculation of basic earnings per share using “Determining the Fair Value of a Financial Asset When the the two-class method prescribed by SFAS 128, “Earnings Per Market for That Asset Is Not Active.” This FSP clarifies the Share.” This guidance will be effective for disclosure application of FASB Statement No. 157, “Fair Value beginning with our first quarter 2009 Form 10-Q with Measurements,” in a market that is not active and provides an retrospective application required. We do not expect the example to illustrate key considerations in determining the fair adoption of this guidance to have a material effect on our value of a financial asset when the market for that financial earnings per share disclosures. asset is not active. This guidance was considered in determining the fair value of financial assets beginning In September 2008, the FASB issued FSP FAS 133-1 and FIN September 30, 2008. 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and In December 2008, the FASB issued FSP FAS 140-4 and FIN FASB Interpretation No. 45; and Clarification of the Effective 46(R)-8, “Disclosures by Public Entities (Enterprises) about Date of FASB Statement No. 161.” This FSP amends FASB Transfers of Financial Assets and Interests in Variable Interest Statement No. 133, “Accounting for Derivative Instruments Entities.” This FSP amends FASB Statement No. 140, and Hedging Activities,” to require disclosures by sellers of “Accounting for Transfers and Servicing of Financial Assets credit derivatives, including credit derivatives embedded in a and Extinguishments of Liabilities,” and will require hybrid instrument. This FSP also amends FASB Interpretation additional disclosures about transfers of financial assets. It No. 45, “Guarantor’s Accounting and Disclosure also amends FASB Interpretation No. 46 (revised December Requirements for Guarantees, Including Indirect Guarantees 2003), “Consolidation of Variable Interest Entities,” and of Indebtedness of Others,” to require additional disclosure requires additional disclosures about involvement with about the payment/performance risk of a guarantee. This variable interest entities. This guidance was effective guidance was effective December 31, 2008 for PNC. See Note December 31, 2008 for PNC. See Note 3 Variable Interest 25 Commitments and Guarantees for additional information. Entities for additional information.

In September 2008, the FASB issued an Exposure Draft, In December 2008, the FASB issued FSP FAS 132(R)-1, “Proposed Statement, Amendments to FASB Interpretation “Employers’ Disclosures about Postretirement Benefit Plan No. 46(R).” This proposed Statement would amend FIN 46R Assets.” This FSP amends FASB Statement No. 132 (revised and require ongoing assessments to determine: 1) whether an 2003), “Employers’ Disclosures about Pensions and Other entity is a variable interest entity and, 2) whether an enterprise Postretirement Benefits,” to provide guidance on an is the primary beneficiary of a variable interest entity. The employer’s disclosures about plan assets of a defined benefit primary beneficiary determination generally would be based pension or other postretirement plan. This guidance will be on a qualitative analysis based on who has power over the effective December 31, 2009 for PNC. activities of the entity and the rights to receive benefits or absorb losses. Enhanced disclosures would also be required. In January 2009, the FASB issued FSP EITF 99-20-1, This proposed guidance would be effective for PNC beginning “Amendments to the Impairment Guidance of EITF Issue January 1, 2010. The guidance as proposed could require us to No. 99-20.” This FSP amends the impairment guidance in consolidate certain VIEs or securitization trusts if we are EITF Issue No. 99-20, “Recognition of Interest income and deemed the primary beneficiary. Impairment on Purchased Beneficial Interests and Beneficial Interest That Continue to Be Held by a Transferor in In September 2008, the FASB issued an Exposure Draft, Securitized Financial Assets.” The FSP also retains and “Proposed Statement, Accounting for Transfers of Financial emphasizes the objective of an other-than-temporary Assets – an amendment of FASB Statement No. 140.” This impairment assessment and the related disclosure proposed Statement, a revision of a 2005 FASB Exposure requirements in FASB Statement No. 115, “Accounting for Draft, would remove (1) the concept of a qualifying SPE from Certain Investments in Debt and Equity Securities,” and other

96 related guidance. This guidance was effective December 31, During 2006, the FASB issued the following: 2008 for PNC. The adoption of this guidance did not have a • SFAS 158, “Employers’ Accounting for Defined material effect on our results of operations or financial Benefit Pension and Other Postretirement Plans – an position. amendment of FASB Statements No. 87, 88, 106, and 132(R).” This statement affects the accounting and In January 2009, the FASB issued proposed FSP FAS 107-b reporting for our qualified pension plan, our and APB 28-a, “Interim Disclosures about Fair Value of nonqualified retirement plans, our postretirement Financial Instruments”. This FSP would amend FASB welfare benefit plans and our post employment Statement No. 107, “Disclosures about Fair Value of Financial benefit plan. SFAS 158 required recognition on the Instruments, to require disclosures about fair value of financial balance sheet of the over- or underfunded position of instruments in interim financial statements as well as in annual these plans as the difference between the fair value of financial statements. This FSP also would amend APB plan assets and the related benefit obligations Opinion No. 28, “Interim Financial Reporting”, to require previously recognized on the balance sheet. The those disclosures in all interim financial statements. As difference, net of tax, was recorded as part of proposed, the disclosures would be effective for the quarter accumulated other comprehensive income or loss ended March 31, 2009. (“AOCI”) within the shareholders’ equity section of the balance sheet. This guidance also required the In December 2007, the FASB issued SFAS 141(R), “Business recognition of any unrecognized actuarial gains and Combinations.” This statement will require all businesses losses and unrecognized prior service costs to AOCI, acquired to be measured at the fair value of the consideration net of tax. SFAS 158 was effective for PNC as of paid as opposed to the cost-based provisions of SFAS 141. It December 31, 2006, with no restatement for prior will require an entity to recognize the assets acquired, the year-end reporting periods permitted. The impact of liabilities assumed, and any noncontrolling interest in the adoption of SFAS 158 at December 31, 2006 was a acquiree at the acquisition date, measured at their fair values reduction of AOCI of $132 million after tax. as of that date. SFAS 141(R) requires the value of • FIN 48 “Accounting for Uncertainty in Income Taxes consideration paid including any future contingent – an Interpretation of FASB Statement No. 109,” consideration to be measured at fair value at the closing date clarifies the accounting for uncertainty in income of the transaction. Also, restructuring costs and acquisition taxes recognized in the financial statements and sets costs are to be expensed rather than included in the cost of the forth recognition, derecognition and measurement acquisition. This guidance is effective for all acquisitions with criteria for tax positions taken or expected to be taken closing dates after January 1, 2009. in a tax filing. For PNC, this guidance was effective for all tax positions taken or expected to be taken In December 2007, the FASB issued SFAS 160, “Accounting beginning on January 1, 2007. See Note 19 Income and Reporting of Noncontrolling Interests in Consolidated Taxes for additional information. Financial Statements, an amendment of ARB No. 51.” This • FSP FAS 13-2, “Accounting for a Change or statement amends ARB No. 51 to establish accounting and Projected Change in the Timing of Cash Flows reporting standards for the noncontrolling interest in a Relating to Income Taxes Generated by a Leveraged subsidiary and for the deconsolidation of a subsidiary. It Lease Transaction,” requires a recalculation of the clarifies that a noncontrolling interest should be reported as timing of income recognition for a leveraged lease equity in the consolidated financial statements. This statement under SFAS 13, “Accounting for Leases,” when a requires expanded disclosures that identify and distinguish change in the timing of income tax deductions between the interests of the parent’s owners and the interests directly related to the leveraged lease transaction of the noncontrolling owners of an entity. This guidance is occurs or is projected to occur. Any tax positions effective January 1, 2009. We do not expect the adoption to taken regarding the leveraged lease transaction must have a material impact on our consolidated financial be recognized and measured in accordance with FIN statements. 48 described above. This guidance was effective for PNC beginning January 1, 2007 with the cumulative In May 2007, the FASB issued FSP FIN 48-1, “Definition of effect of applying the provisions of this FSP being Settlement in FASB Interpretation (“FIN”) No. 48.” This FSP recognized through an adjustment to opening retained amended FIN 48, “Accounting for Uncertainty in Income earnings. Any immediate or future reductions in Taxes,” to provide guidance as to the determination of earnings from the change in accounting would be whether a tax position is deemed effectively settled for recovered in subsequent years. Our adoption of the purposes of recognizing previously unrecognized tax benefits guidance in FSP FAS 13-2 resulted in an after-tax under FIN 48. This guidance was adopted effective January 1, charge to beginning retained earnings at January 1, 2007 in connection with our adoption of FIN 48. See Note 21 2007 of approximately $149 million. Income Taxes for additional information.

97 NOTE 2ACQUISITIONS AND DIVESTITURES National City were to enhance shareholder value, to improve 2008 PNC’s competitive position in the financial services industry NATIONAL CITY CORPORATION and to further expand PNC’s existing branch network in states On December 31, 2008, we acquired National City for where it currently operates as well as expanding into new approximately $6.1 billion. The total consideration included markets. approximately $5.6 billion of common stock, representing This acquisition was accounted for under the purchase method approximately 95 million shares, $150 million of preferred of accounting. The purchase price was allocated to the stock and cash of $379 million paid to warrant holders by National City assets acquired and liabilities assumed using National City. The transaction requires no future contingent their estimated fair values as of the acquisition date, consideration payments. December 31, 2008. Since the acquisition occurred at year end, no results of operations of National City are included in National City, based in Cleveland, Ohio, was one of the the Consolidated Income Statement. The summary nation’s largest financial services companies. At computation of the purchase price and the allocation of the December 31, 2008, prior to our acquisition, National City had purchase price to the net assets of National City are presented total assets of approximately $153 billion and total deposits of below. The allocation of the purchase price may be modified approximately $101 billion. National City operates through an through 2009 as more information, such as appraisals, extensive network in Ohio, Florida, Illinois, Indiana, contracts, reviews of legal documentation, and selected key Kentucky, Michigan, Missouri, Pennsylvania and Wisconsin borrower data, is obtained about the fair value of assets and also conducts selected consumer lending businesses and acquired and liabilities assumed and may result in goodwill. other financial services on a nationwide basis. Its primary We also have not yet finalized our plans to exit National City businesses include commercial and retail banking, mortgage facilities or identified employee terminations. Completion of financing and servicing, consumer finance and asset these plans will likely result in additional liabilities in future management. The primary reasons for the merger with periods.

(In millions, except per share data) Net assets acquired National City stockholders’ equity $13,432 Cash paid to certain warrant holders by National City 379 National City goodwill and other intangibles (3,275) Gross net assets acquired $10,536 Preliminary adjustments to reflect fair value of net assets acquired Principal balance of loans (a) (9,831) Allowance for loan losses on impaired loans 2,632 Other adjustments to loans 433 Deferred taxes 2,720 Other assets 331 Other intangibles, including servicing rights 1,084 Deposits (a) (1,930) Borrowed funds (a) 2,395 Accrued expenses and other liabilities (900) (3,066) Adjusted net assets acquired 7,470

Purchase price National City common shares outstanding 2,420 Exchange ratio per share 0.0392 PNC common stock equivalent 94.86 Less: Fractional shares 0.06 PNC common stock issued 94.80 Average PNC share price over days surrounding announcement (b) $ 59.09 Purchase price for National City common shares outstanding $ 5,601 National City preferred stock converted to PNC preferred stock 150 Value of National City options converted to PNC options 2 Cash paid to certain warrant holders by National City 379 Cash in lieu of fractional shares 1 Total purchase price 6,133 Excess of fair value of adjusted net assets acquired over purchase price (c) $ 1,337 (a) Amounts include premium, discount and other fair value adjustments. (b) The value of PNC common stock was determined by averaging its closing price for five trading days, including the announcement date of October 24, 2008. (c) The fair value of the net assets of National City exceeded the purchase price. In accordance with SFAS 141 “Business Combinations”, the fair value allocated to premises, equipment and leasehold improvements and other intangibles reduced these balances by $891 million and $446 million, respectively.

98 Condensed Statement of National City Net Assets Purchase accounting adjustments include discounts and Acquired premiums on interest-earning assets and liabilities as follows: The following condensed statement of net assets reflects the • Discounts on loans of $6.1 billion will be accreted to preliminary value assigned to National City net assets as of net interest income using the constant effective yield the December 31, 2008 acquisition date. The values are net of method over the weighted average life of the loans, the reallocation of the excess value of net assets acquired over estimated to be between two and three years. The the purchase price ($1.337 billion), and the cash paid by weighted average lives could vary depending on National City to its warrant holders ($379 million). prepayments, revised estimated cash flows and other related factors. Of the $6.1 billion of discounts, $3.7 (In millions) billion relates to loans accounted for under SOP 03-3 Assets and $2.4 billion relates to performing loans. A total Cash and due from banks $ 2,144 of $3.7 billion of the fair value mark on impaired Federal funds sold and resale agreements 7,335 loans is not accretable. Trading assets, interest-earning deposits with banks, and • Premiums on interest-earning time deposits of $2.1 other short-term investments 9,249 billion will be amortized over the weighted average Loans held for sale 2,185 life of the deposits of approximately one year using Investment securities 13,327 the constant effective yield method. Net loans 97,435 • Discounts on borrowed funds of $1.8 billion will be Other intangible assets 1,797 accreted over the weighted average life of the Equity investments 2,060 borrowings of approximately seven years using the Other assets 12,651 constant effective yield method. Total assets $148,183 Liabilities Deposits $103,639 Federal funds purchased and repurchase agreements 3,501 Other borrowed funds 21,919 Other liabilities 13,370 Total liabilities 142,429 Net assets acquired $ 5,754

Other intangible assets acquired consisted of the following (in millions):

Fair Weighted Amortization Intangible Asset Value Life Method Residential mortgage servicing rights $1,003 (a) (a) Core deposit (b) 351 12 yrs Accelerated Commercial mortgage servicing rights 210 13 yrs Accelerated Wealth management customer relationships (b) 203 12 yrs Straight line National City brand (b) 15 21 mos Straight line Consumer loan servicing rights 15 2 yrs Accelerated Total $1,797 (a) Intangible asset carried at fair value. (b) Fair value adjusted for the allocation of the excess of fair value of net assets acquired over the purchase price. See Note 9 Goodwill and Other Intangible Assets for additional information.

99 The following table presents the unaudited pro forma services. Albridge extends PNC Global Investment combined results of operations of PNC and National City as if Servicing’s capabilities into the delivery of knowledge-based the acquisition had been completed as of the beginning of information services through its relationships with financial 2008 or 2007. The unaudited pro forma results of operations institutions and financial advisors. are presented solely for information purposes and are not intended to represent or be indicative of the consolidated COATES ANALYTICS,LP results of operations that PNC would have reported had this transaction been completed as of the dates and for the periods Also on December 7, 2007, we acquired Coates Analytics, LP presented, nor are they necessarily indicative of future results. (“Coates Analytics”), a Chadds Ford, Pennsylvania-based provider of web-based analytic tools that help asset managers Unaudited Pro Forma Combined Results identify wholesaler territories and financial advisor targets, promote products in the marketplace and strengthen (In millions, except per share data) 2008 2007 competitive intelligence. Coates Analytics complements PNC Total revenue $15,397 $16,709 Global Investment Servicing’s business strategy. Net income (loss) (3,742) 3,695

Per share data YARDVILLE NATIONAL BANCORP Earnings (loss) – basic $ (9.58) $ 7.66 On October 26, 2007 we acquired Hamilton, New Jersey- Earnings (loss) – diluted (9.60) 7.55 based Yardville National Bancorp (“Yardville”). Yardville Average common shares outstanding – basic 439 426 shareholders received an aggregate of approximately Average common shares outstanding – diluted 439 431 3.4 million shares of PNC common stock and $156 million in cash. Total consideration paid was approximately $399 The unaudited pro forma combined results of operations million in stock and cash. include the effect of the net amortization/accretion of purchase accounting fair value adjustments based on asset and liability ARCS COMMERCIAL MORTGAGE CO., L.P. valuations as of the acquisition date. They also reflect the On July 2, 2007, we acquired ARCS Commercial Mortgage receipt of $7.6 billion from the sale of preferred securities and Co., L.P. (“ARCS”), a Calabasas Hills, California-based issuance of a warrant to purchase 16.9 million shares of PNC lender with 10 origination offices in the United States. ARCS common stock under the TARP Capital Purchase Program has been a leading originator and servicer of agency (See Note 19 Shareholders’ Equity for additional multifamily loans for the past decade. information). During 2008, National City recorded $2.4 billion of nonrecurring charges for goodwill impairments which are included in these pro forma results. These MERCANTILE BANKSHARES CORPORATION adjustments have been consistently applied to each period Effective March 2, 2007, we acquired Mercantile Bankshares presented in the table above. Corporation (“Mercantile”). Mercantile shareholders received an aggregate of approximately 53 million shares of PNC common stock and $2.1 billion in cash. Total consideration STERLING FINANCIAL CORPORATION paid was approximately $5.9 billion in stock and cash. On April 4, 2008, we acquired Lancaster, Pennsylvania-based Sterling Financial Corporation (“Sterling”). Sterling shareholders received an aggregate of approximately 2006 4.6 million shares of PNC common stock and $224 million of BLACKROCK/MLIM TRANSACTION cash. On September 29, 2006, Merrill Lynch contributed its investment management business (“MLIM”) to BlackRock in exchange for 65 million shares of newly issued BlackRock J.J.B. HILLIARD, W.L. LYONS, LLC common and preferred stock. BlackRock accounted for the On March 31, 2008, we sold J.J.B. Hilliard, W.L. Lyons, LLC MLIM transaction under the purchase method of accounting. (“Hilliard Lyons”), a Louisville, Kentucky-based wholly- Immediately following the closing, PNC continued to own owned subsidiary of PNC and a full-service brokerage and 44 million shares of BlackRock common stock representing financial services provider, to Houchens Industries, Inc. We an ownership interest of 34% of the combined company (as recognized an after-tax gain of $23 million in the first quarter compared with 69% immediately prior to the closing). of 2008 in connection with this divestiture. We also recorded a liability at September 30, 2006 for 2007 deferred taxes of $.9 billion, related to the excess of the book ALBRIDGE SOLUTIONS INC. value over the tax basis of our investment in BlackRock, and a On December 7, 2007, we acquired Albridge Solutions Inc. liability of $.6 billion related to our obligation to provide (“Albridge”), a Lawrenceville, New Jersey-based provider of shares of BlackRock common stock to help fund certain portfolio accounting and enterprise wealth management BlackRock long-term incentive plan (“LTIP”) programs.

100 Beginning with fourth quarter 2006, we recognize gain or loss We hold significant variable interests in VIEs that have not each quarter-end on our remaining liability to provide shares been consolidated because we are not considered the primary of BlackRock common stock to help fund certain BlackRock beneficiary. Information on these VIEs follows: LTIP programs as that liability is marked to market based on changes in BlackRock’s common stock price. We recognized Non-Consolidated VIEs – Significant Variable Interests a pretax gain of $82 million in the first quarter of 2007 from Aggregate Aggregate PNC Risk In millions Assets Liabilities of Loss the transfer of BlackRock shares for certain payouts under one of these programs. Additional BlackRock shares were December 31, 2008 distributed to LTIP participants in the first quarter of 2008, Market Street $4,916 $5,010 $6,965(a) Collateralized debt obligations 20 2 resulting in a $3 million pretax gain. Partnership interests in tax credit investments (b) (c) (d) 1,095 652 920 The overall balance sheet impact of the BlackRock/MLIM Total (c) $6,031 $5,662 $7,887 transaction was an increase to our shareholders’ equity of $1.6 billion. The increase to equity was comprised of an after-tax December 31, 2007 gain of $1.3 billion, net of the expense associated with the Market Street $5,304 $5,330 $9,019(a) LTIP liability and the deferred taxes, and an after-tax increase Collateralized debt obligations 255 177 6 Partnership interests in low to capital surplus of $.3 billion. The recognition of the gain is income housing projects 298 184 155 consistent with our existing accounting policy for the sale or issuance by subsidiaries of their stock to third parties. The Total $5,857 $5,691 $9,180 (a) PNC’s risk of loss consists of off-balance sheet liquidity commitments to Market gain represents the difference between our basis in BlackRock Street of $6.4 billion and other credit enhancements of $.6 billion at December 31, stock prior to the BlackRock/MLIM transaction and the new 2008. The comparable amounts were $8.8 billion and $.2 billion at December 31, book value per share and resulting increase in value of our 2007. (b) Amounts reported primarily represent low income housing projects. investment realized from the transaction. The direct increase (c) Amounts include the impact of National City. to capital surplus rather than inclusion in the gain resulted (d) Aggregate assets and aggregate liabilities at December 31, 2008 represent from the accounting treatment required due to existing approximate balances due to limited availability of financial information associated BlackRock repurchase commitments or programs. with the acquired National City partnerships that we did not sponsor.

MARKET STREET For the nine months ended September 30, 2006, our Market Street Funding LLC (“Market Street”) is a multi-seller Consolidated Income Statement included our former 69% – asset-backed commercial paper conduit that is owned by an 71% ownership interest in BlackRock’s net income through independent third party. Market Street’s activities primarily the closing date. However, beginning September 30, 2006, our involve purchasing assets or making loans secured by interests Consolidated Balance Sheet no longer reflected the in pools of receivables from US corporations that desire consolidation of BlackRock’s balance sheet but recognized access to the commercial paper market. Market Street funds our ownership interest in BlackRock as an investment the purchases of assets or loans by issuing commercial paper accounted for under the equity method. Since that date, our which has been rated A1/P1 by Standard & Poor’s and share of BlackRock’s net income is reported within asset Moody’s, respectively, and is supported by pool-specific management noninterest income in PNC’s Consolidated credit enhancements, liquidity facilities and program-level Income Statement. credit enhancement. Generally, Market Street mitigates its potential interest rate risk by entering into agreements with its NOTE 3VARIABLE INTEREST ENTITIES borrowers that reflect interest rates based upon its weighted We are involved with various entities in the normal course of average commercial paper cost of funds. During 2007 and business that were deemed to be VIEs. We consolidated 2008, Market Street met all of its funding needs through the certain VIEs as of December 31, 2008 and 2007 for which we issuance of commercial paper. were determined to be the primary beneficiary. PNC Bank, N.A. provides certain administrative services, the Consolidated VIEs – PNC Is Primary Beneficiary program-level credit enhancement and 99% of liquidity Aggregate Aggregate facilities to Market Street in exchange for fees negotiated In millions Assets Liabilities based on market rates. PNC recognized program administrator Partnership interests in low income housing fees and commitment fees related to PNC’s portion of the projects (a) liquidity facilities of $21 million and $4 million, respectively, December 31, 2008 $1,499 $1,455 December 31, 2007 $1,108 $1,108 for the year ended December 31, 2008. The comparable Credit Risk Transfer Transaction (b) amounts were $13 million and $4 million for the year ended December 31, 2008 $1,070 $1,070 December 31, 2007. (a) Amounts for December 31, 2008 include National City, which PNC acquired on that date. (b) National City-related transaction.

101 The commercial paper obligations at December 31, 2008 and the Low Income Housing Tax Credit (“LIHTC”) pursuant to December 31, 2007 were effectively collateralized by Market Sections 42 and 47 of the Internal Revenue Code. The purpose Street’s assets. While PNC may be obligated to fund under the of these investments is to achieve a satisfactory return on $6.4 billion of liquidity facilities for events such as capital, to facilitate the sale of additional affordable housing commercial paper market disruptions, borrower bankruptcies, product offerings and to assist us in achieving goals associated collateral deficiencies or covenant violations, our credit risk with the Community Reinvestment Act. The primary activities under the liquidity facilities is secondary to the risk of first of the limited partnerships include the identification, loss provided by the borrower or another third party in the development and operation of multi-family housing that is form of deal-specific credit enhancement, such as by the over leased to qualifying residential tenants. Generally, these types collateralization of the assets. Deal-specific credit of investments are funded through a combination of debt and enhancement that supports the commercial paper issued by equity. We typically invest in these partnerships as a limited Market Street is generally structured to cover a multiple of partner. expected losses for the pool of assets and is sized to generally meet rating agency standards for comparably structured Also, we are a national syndicator of affordable housing transactions. In addition, PNC would be required to fund $1.0 equity (together with the investments described above, the billion of the liquidity facilities if the underlying assets are in “LIHTC investments”). In these syndication transactions, we default. See Note 25 Commitments and Guarantees for create funds in which our subsidiaries are the general partner additional information. and sell limited partnership interests to third parties, and in some cases may also purchase a limited partnership interest in PNC provides program-level credit enhancement to cover net the fund and/or provide mezzanine financing to the fund. The losses in the amount of 10% of commitments, excluding purpose of this business is to generate income from the explicitly rated AAA/Aaa facilities. PNC provides 100% of syndication of these funds and to generate servicing fees by the enhancement in the form of a cash collateral account managing the funds. General partner activities include funded by a loan facility. This facility expires in March 2013. selecting, evaluating, structuring, negotiating, and closing the Until November 25, 2008, PNC provided only 25% of the fund investments in operating limited partnerships, as well as enhancement in the form of a cash collateral account funded oversight of the ongoing operations of the fund portfolio. by a loan facility and provided a liquidity facility for the remaining 75% of program-level enhancement. We evaluate our interests and third party interests in the limited partnerships in determining whether we are the Market Street has entered into a Subordinated Note Purchase primary beneficiary. The primary beneficiary determination is Agreement (“Note”) with an unrelated third party. The Note based on which party absorbs a majority of the variability. The provides first loss coverage whereby the investor absorbs primary sources of variability in LIHTC investments are the losses up to the amount of the Note, which was $6.6 million as tax credits, tax benefits of losses on the investments and of December 31, 2008. Proceeds from the issuance of the Note development and operating cash flows. We have consolidated are held by Market Street in a first loss reserve account that LIHTC investments in which we absorb a majority of the will be used to reimburse any losses incurred by Market variability and thus are considered the primary beneficiary. Street, PNC Bank, N.A. or other providers under the liquidity The assets are primarily included in Equity Investments and facilities and the credit enhancement arrangements. Other Assets on our Consolidated Balance Sheet with the liabilities primarily classified in Other Liabilities and Minority We evaluated the design of Market Street, its capital structure, Interest. Neither creditors nor equity investors in the LIHTC the Note and relationships among the variable interest holders investments have any recourse to our general credit. The under the provisions of FIN 46R. Based on this analysis, we consolidated aggregate assets and liabilities of these LIHTC are not the primary beneficiary as defined by FIN 46R and investments are provided in the Consolidated VIEs – PNC Is therefore the assets and liabilities of Market Street are not Primary Beneficiary table and reflected in the “Other” reflected in our Consolidated Balance Sheet. business segment.

PNC considers changes to the variable interest holders (such We also have LIHTC investments in which we are not the as new expected loss note investors and changes to program- primary beneficiary, but are considered to have a significant level credit enhancement providers), changes to the terms of variable interest based on our interests in the partnership. expected loss notes, and new types of risks related to Market These investments are disclosed in the Non-Consolidated Street as reconsideration events. PNC reviews the activities of VIEs – Significant Variable Interests table. The table also Market Street on at least a quarterly basis to determine if a reflects our maximum exposure to loss. Our maximum reconsideration event has occurred. exposure to loss is equal to our legally binding equity commitments adjusted for recorded impairment and LOW INCOME HOUSING PROJECTS partnership results. We use the equity and cost methods to We make certain equity investments in various limited account for our investment in these entities with the partnerships that sponsor affordable housing projects utilizing investments reflected in Equity Investments on our

102 Consolidated Balance Sheet. In addition, we increase our private placement by PNC REIT Corp. of $500 million of recognized investments and recognize a liability for all legally 6.517% Fixed-to-Floating Rate Non-Cumulative binding unfunded equity commitments. These liabilities are Exchangeable Perpetual Trust Securities (the “Trust I reflected in Other Liabilities on our Consolidated Balance Securities”) of PNC Preferred Funding Trust I (“Trust I”) in Sheet. which Trust I acquired $500 million of LLC Preferred Securities. PNC REIT Corp. owns 100% of LLC’s common CREDIT RISK TRANSFER TRANSACTION voting securities. As a result, LLC is an indirect subsidiary of National City Bank (“NCB”) sponsored a special purpose PNC and is consolidated on our Consolidated Balance Sheet. entity (“SPE”) trust and concurrently entered into a credit risk Trust I, II and III’s investment in LLC Preferred Securities is transfer agreement with an independent third party to mitigate characterized as a minority interest on our Consolidated credit losses on a pool of nonconforming mortgage loans Balance Sheet since we are not the primary beneficiary of originated by its former First Franklin business unit. The SPE Trust I, Trust II and Trust III. This minority interest totaled was formed with a small contribution from NCB and was approximately $1.3 billion at December 31, 2008. structured as a bankruptcy-remote entity so that its creditors have no recourse to NCB. In exchange for a perfected security PNC has contractually committed to Trust II and Trust III that interest in the cash flows of the nonconforming mortgage if full dividends are not paid in a dividend period on the Trust loans, the SPE issued to NCB asset-backed securities in the II Securities or the Trust III Securities, as applicable, or the form of senior, mezzanine, and subordinated equity notes. LLC Preferred Securities held by Trust II or Trust III, as NCB has incurred credit losses equal to the subordinated applicable, PNC will not declare or pay dividends with respect equity notes. NCB currently holds the right to put the to, or redeem, purchase or acquire, any of its equity capital mezzanine notes to the independent third-party at par. As of securities during the next succeeding dividend period, other December 31, 2008, the value of the mezzanine notes was than: (i) purchases, redemptions or other acquisitions of shares $169 million. NCB holds the senior notes and will be of capital stock of PNC in connection with any employment responsible for credit losses in excess of this amount. contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors or consultants, (ii) purchases of shares of common stock of PNC pursuant to a The SPE was deemed to be a VIE as its equity was not contractually binding requirement to buy stock existing prior sufficient to finance its activities. NCB was determined to be to the commencement of the extension period, including under the primary beneficiary of the SPE as it would absorb the a contractually binding stock repurchase plan, (iii) any majority of the expected losses of the SPE through its holding dividend in connection with the implementation of a of all of the asset-backed securities. Accordingly, this SPE shareholders’ rights plan, or the redemption or repurchase of was consolidated and all of the entity’s assets, liabilities, and any rights under any such plan, (iv) as a result of an exchange equity are intercompany balances and are eliminated in or conversion of any class or series of PNC’s capital stock for consolidation. Nonconforming mortgage loans, including any other class or series of PNC’s capital stock, (v) the foreclosed properties, pledged as collateral to the SPE remain purchase of fractional interests in shares of PNC capital stock on the balance sheet and totaled $719 million at December 31, pursuant to the conversion or exchange provisions of such 2008 reflecting the impact of fair value adjustments recorded stock or the security being converted or exchanged or (vi) any by PNC in conjunction with the acquisition. stock dividends paid by PNC where the dividend stock is the same stock as that on which the dividend is being paid. PERPETUAL TRUST SECURITIES We issue certain hybrid capital vehicles that qualify as capital PNC Bank, N.A. has contractually committed to Trust I that if for regulatory purposes. full dividends are not paid in a dividend period on the Trust I Securities, LLC Preferred Securities or any other parity equity In February 2008, PNC Preferred Funding LLC (the “LLC”), securities issued by the LLC, neither PNC Bank, N.A. nor its one of our indirect subsidiaries, sold $375 million of 8.700% subsidiaries will declare or pay dividends or other Fixed-to-Floating Rate Non-Cumulative Exchangeable distributions with respect to, or redeem, purchase or acquire or Perpetual Trust Securities of PNC Preferred Funding Trust III make a liquidation payment with respect to, any of its equity (“Trust III”) to third parties in a private placement. In capital securities during the next succeeding period (other than connection with the private placement, Trust III acquired $375 to holders of the LLC Preferred Securities and any parity million of Fixed-to-Floating Rate Non-Cumulative Perpetual equity securities issued by the LLC) except: (i) in the case of Preferred Securities of the LLC (the “LLC Preferred dividends payable to subsidiaries of PNC Bank, N.A., to PNC Securities”). The sale was similar to the March 2007 private Bank, N.A. or another wholly-owned subsidiary of PNC Bank, placement by the LLC of $500 million of 6.113% N.A. or (ii) in the case of dividends payable to persons that are Fixed-to-Floating Rate Non-Cumulative Exchangeable Trust not subsidiaries of PNC Bank, N.A., to such persons only if, Securities (the “Trust II Securities”) of PNC Preferred (A) in the case of a cash dividend, PNC has first irrevocably Funding Trust II (“Trust II”) in which Trust II acquired $500 committed to contribute amounts at least equal to such cash million of LLC Preferred Securities and to the December 2006 dividend or (B) in the case of in-kind dividends payable by

103 PNC REIT Corp., PNC has committed to purchase such products at the time of origination. In addition, these loans are in-kind dividend from the applicable PNC REIT Corp. holders concentrated in our primary geographic markets as discussed in exchange for a cash payment representing the market value above. At December 31, 2008, $6.8 billion of the $38.3 billion of such in-kind dividend, and PNC has committed to of home equity loans (included in “Consumer” in the table contribute such in-kind dividend to PNC Bank, N.A. above) had a loan-to-value ratio greater than 90%. These loans are collateralized primarily by 1-4 family residential properties. NOTE 4LOANS,COMMITMENTS TO EXTEND Included in the residential real estate category in the table CREDIT AND CONCENTRATIONS OF CREDIT above, at December 31, 2008, $5.6 billion of the $18.8 billion of residential mortgage loans were interest-only loans. RISK Loans outstanding were as follows: We realized a net loss on sales of commercial mortgages of $6 December 31 - in millions 2008 (a) 2007 million in 2008, and net gains of $39 million in 2007 and $55 Commercial $ 67,319 $28,539 million in 2006. Loans held for sale are reported separately on Commercial real estate 25,736 8,903 the Consolidated Balance Sheet and are not included in the Consumer 52,489 18,393 table above. Gains on sales of education loans totaled $24 Residential real estate 21,583 9,557 million in 2007 and $33 million in 2006. In February 2008, we Equipment lease financing 6,461 2,514 transferred education loans from held for sale to the loan Other 1,901 413 portfolio and did not recognize any gains on sales of education Total loans $175,489 $68,319 loans during 2008. Interest income from total loans held for (a) Amounts at December 31, 2008 include $99.7 billion of loans related to National sale was $166 million for 2008, $184 million for 2007, and City. $157 million for 2006 and is included in Other interest income in our Consolidated Income Statement. Loans are presented net of unearned income, net deferred loan fees, unamortized discounts and premiums, and purchase Net Unfunded Credit Commitments discounts and premiums totaling $4.1 billion and $990 million December 31 - in millions 2008 (a) 2007 at December 31, 2008 and 2007, respectively. Commercial and commercial real estate $ 59,982 $42,021 Home equity lines of credit 23,195 8,680 Concentrations of credit risk exist when changes in economic, Consumer credit card lines 19,028 969 industry or geographic factors similarly affect groups of Other 2,683 1,677 counterparties whose aggregate exposure is material in Total $104,888 $53,347 relation to our total credit exposure. Loans outstanding and (a) Amounts at December 31, 2008 include $53.9 billion of net unfunded credit related unfunded commitments are concentrated in our commitments related to National City. primary geographic markets. At December 31, 2008, no specific industry concentration exceeded 7% of total Commitments to extend credit represent arrangements to lend commercial loans outstanding. funds subject to specified contractual conditions. At December 31, 2008, commercial commitments are reported In the normal course of business, we originate or purchase net of $8.6 billion of participations, assignments and loan products whose contractual features, when concentrated, syndications, primarily to financial services companies. The may increase our exposure as a holder and servicer of those comparable amount at December 31, 2007 was $8.9 billion. loan products. Possible product terms and features that may Commitments generally have fixed expiration dates, may create a concentration of credit risk would include loan require payment of a fee, and contain termination clauses in products whose terms permit negative amortization, a high the event the customer’s credit quality deteriorates. Based on loan-to-value ratio, features that may expose the borrower to our historical experience, most commitments expire unfunded, future increases in repayments above increases in market and therefore cash requirements are substantially less than the interest rates, below-market interest rates and interest-only total commitment. Consumer home equity lines of credit loans, among others. accounted for 55% of consumer unfunded credit We originate interest-only loans to commercial borrowers. commitments. These products are standard in the financial services industry and the features of these products are considered during the Unfunded credit commitments related to Market Street totaled underwriting process to mitigate the increased risk of this $6.4 billion at December 31, 2008 and $8.8 billion at product feature that may result in borrowers not being able to December 31, 2007 and are included in the preceding table make interest and principal payments when due. We do not primarily within the “Commercial” and “Consumer” categories. believe that these product features create a concentration of credit risk. At December 31, 2008, we pledged $32.9 billion of loans to the Federal Reserve Bank (“FRB”) and $50.0 billion of loans We also originate home equity loans and lines of credit that to the Federal Home Loan Bank (“FHLB”) as collateral for the result in a credit concentration of high loan-to-value ratio loan contingent ability to borrow, if necessary.

104 NOTE 5ASSET QUALITY The following table sets forth nonperforming assets and related information:

December 31 - dollars in millions 2008 (a) 2007 Nonaccrual loans Commercial $ 576 $193 Commercial real estate 766 212 Equipment lease financing 97 3 TOTAL COMMERCIAL LENDING 1,439 408 Consumer Home equity 66 16 Other 4 1 Total consumer 70 17 Residential real estate Residential mortgage 139 26 Residential construction 14 1 Total residential real estate 153 27 TOTAL CONSUMER LENDING 223 44 Total nonaccrual loans 1,662 452 Restructured loans 2 Total nonperforming loans 1,662 454 Foreclosed and other assets Commercial lending 34 23 Consumer 11 8 Residential real estate 458 10 Total foreclosed and other assets 503 41 Total nonperforming assets (b) (c) $2,165 $495 Nonperforming loans to total loans .95% .66% Nonperforming assets to total loans and foreclosed assets 1.23 .72 Nonperforming assets to total assets .74 .36 Interest on nonperforming loans Computed on original terms $ 115 $51 Recognized prior to nonperforming status 60 32 Past due loans Accruing loans past due 90 days or more $3,259 $136 As a percentage of total loans 1.86% .20% (a) Amounts at December 31, 2008 include $722 million of nonperforming assets related to National City. Nonperforming assets of National City are comprised of $250 million of nonperforming loans, including $154 million related to commercial lending and $96 million related to consumer lending, and $472 million of foreclosed and other assets. Nonperforming assets added with the National City acquisition excluded those loans that PNC impaired in accordance with SOP 03-3. See Note 6 Certain Loans Acquired in a Transfer for additional information regarding SOP 03-3 loans. (b) Excludes equity management assets carried at estimated fair value of $42 million at December 31, 2008 and $4 million at December 31, 2007. (c) Excludes loans held for sale carried at lower of cost or market value of $78 million at December 31, 2008 and $25 million at December 31, 2007, including troubled debt restructured assets of $5 million at December 31, 2008.

105 Net interest income less the provision for credit losses was Changes in the allowance for unfunded loan commitments and $2.306 billion for 2008 compared with $2.600 billion for 2007 letters of credit were as follows: and $2.121 billion for 2006. In millions 2008 2007 2006 Changes in the allowance for loan and lease losses were as Allowance at January 1 $134 $120 $100 Acquired allowance – National City 74 follows: Acquired allowance – other (a) 1 17 In millions 2008 2007 2006 Net change in allowance for unfunded loan commitments and letters of credit 135 (3) 20 January 1 $ 830 $ 560 $ 596 Charge-offs (618) (245) (180) December 31 $344 $134 $120 Recoveries 79 45 40 (a) Sterling in 2008 and Mercantile in 2007. Net charge-offs (539) (200) (140) Provision for credit losses (a) 1,517 315 124 Impaired loans, as defined under SFAS 114, exclude leases Acquired allowance – National City 2,224 and smaller homogenous type loans as well as National City Acquired allowance – other (b) 20 152 impaired loans accounted for pursuant to SOP 03-3. We did Net change in allowance for unfunded not recognize any interest income on loans while they were loan commitments and letters of credit (135) 3 (20) impaired in 2008, 2007 or 2006. The following table provides December 31 $3,917 $ 830 $ 560 further detail on impaired loans and the associated allowance (a) Amount for 2008 includes conforming provision adjustments of $504 million related for loan losses: to National City and $23 million related to Sterling. Amount for 2007 includes a conforming provision adjustment of $45 million related to Yardville. SFAS 114 SUMMARY OF IMPAIRED LOANS (a) (b) Sterling in 2008. Amount for 2007 includes $137 million related to Mercantile and $15 million related to Yardville. At December 31 In millions 2008 2007 Impaired loans with an associated reserve $1,249 $371 Impaired loans without an associated reserve 93 36 Total impaired loans $1,342 $407 Specific allowance for credit losses $ 405 $124 Average impaired loan balance $ 674 $200 (a) Excludes residential, leasing and construction loans.

106 NOTE 6 ACCOUNTING FOR CERTAIN LOANS Acquired Loan Information

ACQUIRED IN A TRANSFER December 31, Loans acquired with evidence of credit quality deterioration In millions 2008 since origination and for which it is probable at purchase that Contractually required payments including interest $23,845 PNC will be unable to collect all contractually required Less: Nonaccretable difference 8,256 payments are accounted for under SOP 03-3. Evidence of Cash flows expected to be collected 15,589 credit quality deterioration as of the purchase date includes Less: Accretable yield 3,668 statistics such as past due status, current borrower FICO credit Fair value of loans acquired $11,921 scores, geographic concentration and current loan-to-value (LTV), some of which are not immediately available as of the Under SOP 03-3, the excess of cash flows expected at purchase date. We will continue to evaluate this information acquisition over the estimated fair value is referred to as the and other credit related information as it becomes available. accretable yield and is recognized in interest income over the SOP 03-3 addresses accounting for differences between remaining life of the loan using the constant effective yield contractual cash flows and cash flows expected to be collected method. The difference between contractually required from our initial investment in loans if those differences are payments at acquisition and the cash flows expected to be attributable, at least in part, to credit quality. SOP 03-3 collected at acquisition is referred to as the nonaccretable requires acquired impaired loans to be recorded at fair value difference. Changes in the expected cash flows from the date and prohibits “carrying over” or the creation of valuation of acquisition will either impact the accretable yield or result allowances in the initial accounting for loans acquired in a in a charge to the provision for credit losses in the period in transfer that are within the scope of this SOP. A total of $2.6 which the changes become probable. Subsequent decreases to billion of National City allowance for loan losses was not the expected cash flows will generally result in a charge to the carried over in purchase accounting. Excluded from the scope provision for credit losses resulting in an increase to the were leases, revolving credit arrangements and certain loans allowance for loan and lease losses, and a reclassification held for sale. from accretable yield to nonaccretable difference. Subsequent increases in cash flows will result in a recovery of any The fair values for loans within the scope of SOP 03-3 are previously recorded allowance for loan and lease losses, to the determined by discounting both principal and interest cash extent applicable, and a reclassification from nonaccretable flows expected to be collected using an observable discount difference to accretable yield. There was no allowance for rate for similar instruments with adjustments that management loan and lease losses related to loans acquired within the believes a market participant would consider in determining scope of SOP 03-3 as of December 31, 2008. Disposals of fair value. We estimate the cash flows expected to be collected loans, which may include sales of loans, receipt of payments at acquisition using internal and third party models that in full by the borrower, foreclosure, or troubled debt incorporate management’s best estimate of current key restructurings result in removal of the loan from the SOP 03-3 assumptions, such as default rates, loss severity and payment portfolio at its carrying amount. speeds. There were no changes in the accretable yield of loans during As of December 31, 2008, acquired loans within the scope of 2008 as the majority of SOP 03-3 loans were acquired in SOP 03-3 had a carrying value of $11.9 billion and an unpaid connection with the National City acquisition as of principal balance of $19.3 billion as detailed below: December 31, 2008.

December 31, 2008 In millions Carrying Value Outstanding Balance Commercial $ 493 $ 1,180 Commercial real estate 1,340 2,831 Consumer 3,924 5,785 Residential real estate 6,154 9,482 Other 10 14 Total $11,921 $19,292

107 NOTE 7INVESTMENT SECURITIES Amortized Unrealized Fair In millions Cost Gains Losses Value December 31, 2008 SECURITIES AVAILABLE FOR SALE (a) Debt securities US Treasury and government agencies $ 738 $ 1 $ 739 Residential mortgage-backed Agency 22,744 371 $ (9) 23,106 Nonagency 13,205 (4,374) 8,831 Commercial mortgage-backed 4,305 (859) 3,446 Asset-backed 2,069 4 (446) 1,627 State and municipal 1,326 13 (76) 1,263 Other debt 563 11 (15) 559 Total debt securities 44,950 400 (5,779) 39,571 Corporate stocks and other 575 (4) 571 Total securities available for sale $45,525 $400 $(5,783) $40,142 SECURITIES HELD TO MATURITY (b) Debt securities Commercial mortgage-backed $ 1,945 $ 10 $ (59) $ 1,896 Asset-backed 1,376 7 (25) 1,358 Other debt 10 10 Total debt securities 3,331 17 (84) 3,264 Total securities held to maturity $ 3,331 17 (84) $ 3,264 December 31, 2007 SECURITIES AVAILABLE FOR SALE Debt securities U.S. Treasury and government agencies $ 151 $ 4 $ 155 Residential mortgage-backed Agency 9,218 112 $ (16) 9,314 Nonagency 11,929 6 (297) 11,638 Commercial mortgage-backed 5,227 53 (16) 5,264 Asset-backed 2,878 4 (112) 2,770 State and municipal 340 1 (5) 336 Other debt 85 (1) 84 Total debt securities 29,828 180 (447) 29,561 Corporate stocks and other 662 2 664 Total securities available for sale $30,490 $182 $ (447) $30,225 December 31, 2006 SECURITIES AVAILABLE FOR SALE Debt securities US Treasury and government agencies $ 611 $ (3) $ 608 Residential mortgage-backed Agency 4,351 $ 13 (33) 4,331 Nonagency 12,974 26 (123) 12,877 Commercial mortgage-backed 3,231 13 (25) 3,219 Asset-backed 1,615 3 (9) 1,609 State and municipal 140 1 (2) 139 Other debt 90 (3) 87 Total debt securities 23,012 56 (198) 22,870 Corporate stocks and other 321 1 (1) 321 Total securities available for sale $23,333 $ 57 $ (199) $23,191 (a) During the fourth quarter of 2008, we transferred $.6 billion of trading securities to the available for sale portfolio. (b) During the fourth quarter of 2008, we transferred $3.2 billion of securities available for sale to the securities held to maturity portfolio. At December 31, 2008, the balance of the after- tax unrealized loss related to the securities transferred was $342 million.

108 The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and illiquidity. Net unrealized gains and losses in the securities available for sale portfolio are included in shareholders’ equity as accumulated other comprehensive income or loss, net of tax.

The following table presents unrealized loss and fair value of investment securities at December 31, 2008 and December 31, 2007 for which an other-than-temporary impairment has not been recognized. These securities are segregated between investments that have been in a continuous unrealized loss position for less than twelve months and twelve months or more.

Unrealized loss Unrealized loss position less than position 12 months 12 months or more Total Unrealized Fair Unrealized Fair Unrealized Fair In millions Loss Value Loss Value Loss Value December 31, 2008 Securities available for sale Debt securities Residential mortgage-backed $(1,775) $3,619 ($ 2,608) $3,871 ($ 4,383) $ 7,490 Commercial mortgage-backed (482) 2,207 (377) 1,184 (859) 3,391 Asset-backed (102) 523 (344) 887 (446) 1,410 State and municipal (56) 370 (20) 26 (76) 396 Other debt (11) 185 (4) 8 (15) 193 Total $(2,426) $6,904 $ (3,353) $5,976 $ (5,779) $12,880 December 31, 2007 Securities available for sale Debt securities Residential mortgage-backed $ (157) $6,994 $ (156) $5,065 $ (313) $12,059 Commercial mortgage-backed (3) 365 (13) 769 (16) 1,134 Asset-backed (87) 1,519 (25) 655 (112) 2,174 State and municipal (4) 79 (1) 82 (5) 161 Other debt (1) 40 3 (1) 43 Total $ (252) $8,997 $ (195) $6,574 $ (447) $15,571

During 2008, unprecedented market volatility and relative of these seven securities was $82 million as of illiquidity in certain asset sectors had an adverse impact on the December 31, 2008. valuation of certain of our investment securities. This occurred • We recorded charges totaling $74 million related to even as market interest rates (i.e., interest rate swap rates) our investment in preferred stock of FHLMC and declined at December 31, 2008 compared with December 31, FNMA. The fair value of these securities was 2007. At December 31, 2008, we consider the gross unrealized approximately $2 million as of December 31, 2008. loss of $5.8 billion to be temporary as we had the positive ability and intent for the foreseeable future to hold these Information relating to securities gains and losses is set forth securities until recovery of fair value. in the following table.

Other-than-temporary impairment charges are reflected in net Securities Gains and Losses securities gains (losses) on our Consolidated Income Statement. These charges include the impact of declines in Year ended Net Tax December 31 Gross Gross Gains Expense both credit quality and liquidity. In millions Proceeds Gains Losses (a) (Losses) (Benefit) 2008 $10,283 $114 $320 $(206) $(72) Impairments 2007 6,056 20 25 (5) (2) During 2008, we recorded other-than-temporary impairment 2006 11,102 2 209 (207) (72) charges totaling $312 million. (a) Includes other-than-temporary impairment charges of $312 million for 2008. • We recorded charges totaling $151 million related to eight residential mortgage-backed securities. The fair The fair value of securities pledged to secure public and trust value of these eight securities was approximately deposits and repurchase agreements and for other purposes $184 million as of December 31, 2008. was $22.5 billion at December 31, 2008 and $24.2 billion at • We recorded charges totaling $87 million related to December 31, 2007. The pledged securities include positions two securities collateralized by first-lien residential held in our portfolio of investment securities, trading mortgage loans and five securities collateralized by securities, and securities accepted as collateral from others second-lien residential mortgage loans. The fair value that we are permitted by contract or custom to sell or repledge.

109 The fair value of securities accepted as collateral that we are agreements on our Consolidated Balance Sheet. Of the permitted by contract or custom to sell or repledge was $1.6 permitted amount, $461 million was repledged to others at billion at December 31, 2008 and $2.3 billion at December 31, December 31, 2008 and $1.5 billion was repledged to others at 2007 and is a component of federal funds sold and resale December 31, 2007.

The following table presents, by remaining contractual maturity, the amortized cost, fair value and weighted-average yield of debt securities at December 31, 2008.

Contractual Maturity Of Debt Securities

After 1 Year December 31, 2008 1 Year or through 5 After 5 Years After 10 Dollars in millions Less Years through 10 Years Years Total SECURITIES AVAILABLE FOR SALE US Treasury and government agencies $ 83 $ 84 $ 552 $ 19 $ 738 Residential mortgage-backed 758 9,890 1,397 23,904 35,949 Commercial mortgage-backed 37 52 4,217 4,306 Asset-backed 22 92 488 1,467 2,069 State and municipal 100 226 186 813 1,325 Other debt 7 464 59 33 563 Total debt securities available for sale $ 970 $10,793 $2,734 $30,453 $44,950 Fair value $ 971 $10,789 $2,702 $25,109 $39,571 Weighted-average yield, GAAP basis 6.09% 5.02% 6.06% 5.53% 5.45% SECURITIES HELD TO MATURITY Commercial mortgage-backed $ 130 $ 66 $ 1,749 $ 1,945 Asset-backed $ 43 789 395 149 1,376 Other debt 1910 Total debt securities held to maturity $ 43 $ 919 $ 462 $ 1,907 $ 3,331 Fair value $ 42 $ 907 $ 455 $ 1,860 $ 3,264 Weighted-average yield, GAAP basis 5.35% 5.00% 4.27% 5.20% 5.02%

Based on current interest rates and expected prepayment speeds, the total weighted-average expected maturity of mortgage-backed securities was 2 years and 9 months, of commercial mortgage-backed securities was 4 years and 5 months and of asset-backed securities was 4 years and 11 months at December 31, 2008. Weighted-average yields are based on historical cost with effective yields weighted for the contractual maturity of each security. At December 31, 2008, there were no securities of a single issuer, other than Fannie Mae and Freddie Mac, which exceeded 10% of total shareholders’ equity.

NOTE 8FAIR VALUE Government and agency-backed securities that are actively Fair Value Measurement traded in over-the-counter markets. SFAS 157 defines fair value as the price that would be received to sell an asset or the price paid to transfer a liability Level 2 on the measurement date. The standard focuses on the exit Observable inputs other than Level 1 such as: quoted prices price in the principal or most advantageous market for the for similar assets or liabilities in active markets, quoted prices asset or liability in an orderly transaction between willing for identical or similar assets or liabilities in markets that are market participants. not active, or other inputs that are observable or can be corroborated to observable market data for substantially the SFAS 157 establishes a fair value reporting hierarchy to full term of the asset or liability. Level 2 assets and liabilities maximize the use of observable inputs when measuring fair may include debt securities, equity securities and listed value and defines the three levels of inputs as noted below. derivative contracts with quoted prices that are traded in The financial instruments in Level 3 are typically less liquid. markets that are not active, and certain debt and equity securities and over-the-counter derivative contracts whose fair Level 1 value is determined using a pricing model without significant Quoted prices in active markets for identical assets or unobservable inputs. This category generally includes certain liabilities. Level 1 assets and liabilities may include debt mortgage-backed debt securities, private-issuer securities, securities, equity securities and listed derivative contracts that other asset-backed securities, corporate debt securities and are traded in an active exchange market and certain US derivative contracts.

110 Level 3 significant management judgment or estimation. This category Unobservable inputs that are supported by minimal or no generally includes certain commercial mortgage loans held for market activity and that are significant to the fair value of the sale, private equity investments, certain available for sale assets or liabilities. Level 3 assets and liabilities may include securities, certain trading securities and certain financial financial instruments whose value is determined using pricing derivative contracts. Nonrecurring items, primarily certain models with internally developed assumptions, discounted nonaccrual and other loans held for sale and commercial cash flow methodologies, or similar techniques, as well as mortgage servicing rights, are also included in this category. instruments for which the determination of fair value requires

Assets and liabilities measured at fair value on a recurring basis, including instruments for which PNC has elected the fair value option, are summarized below. As prescribed by SFAS 157, the assets and liabilities of National City acquired in a purchase business combination on December 31, 2008 were excluded from the table below and related SFAS 157 and SFAS 159 disclosures.

Fair Value Measurements – Summary

December 31, 2008 Total Fair In millions Level 1 Level 2 Level 3 Value Assets Securities available for sale $347 $21,633 $4,837 $26,817 Financial derivatives (a) 16 5,582 125 5,723 Trading securities (b) 89 529 73 691 Commercial mortgage loans held for sale (c) 1,400 1,400 Customer resale agreements (d) 1,072 1,072 Equity investments 571 571 Other assets 144 6 150 Total assets $452 $28,960 $7,012 $36,424 Liabilities Financial derivatives (e) $ 2 $ 4,387 $ 22 $ 4,411 Trading securities sold short (f) 182 207 389 Other liabilities 99 Total liabilities $184 $ 4,603 $ 22 $ 4,809 (a) Included in other assets on the Consolidated Balance Sheet. (b) Included in trading securities on the Consolidated Balance Sheet. Fair value includes net unrealized losses of $27.5 million. (c) Included in loans held for sale on the Consolidated Balance Sheet. PNC has elected the fair value option under SFAS 159 for certain commercial mortgage loans held for sale. (d) Included in federal funds sold and resale agreements on the Consolidated Balance Sheet. PNC has elected the fair value option under SFAS 159 for this item. (e) Included in other liabilities on the Consolidated Balance Sheet. (f) Included in other borrowed funds on the Consolidated Balance Sheet.

The table below presents a reconciliation for January 1, 2008 to December 31, 2008 of assets and liabilities measured at fair value on a recurring basis using Level 3 inputs.

Securities Commercial available Financial Trading mortgage Equity Other Financial Level 3 Instruments Only for sale derivatives securities loans held investments assets Total derivatives Total In millions (c) (c) (c) for sale (d) (c) (c) Assets (c) Liabilities December 31, 2007 $ 285 $130 $2,018 $568 $ 4 $3,005 $ 326 $ 326 Impact of SFAS 157 and SFAS 159 adoption 2 2 4 Balance, January 1, 2008 285 132 2,020 568 4 3,009 326 326 Total realized/unrealized gains or losses (a): Included in earnings (b) (9) $ (4) (251) (30) (2) (296) (297) (297) Included in other comprehensive income (164) (164) Purchases, issuances, and settlements, net 515 18 (369) 33 4 201 (8) (8) Transfers into Level 3, net 4,201 2 59 4,262 1 1 December 31, 2008 $4,837 $125 $73 $1,400 $571 $ 6 $7,012 $ 22 $ 22 (a) Losses for assets are bracketed which losses for liabilities are not. (b) Attributable to unrealized gains or losses related to assets or liabilities held at December 31, 2008: $ 16 $ 1 $ (213) $ (50) $ (246) $ (37) $ (37) (c) Carried at fair value prior to our adoption of SFAS 157. (d) We elected the fair value option under SFAS 159 for this item.

111 The after-tax adjustment to beginning retained earnings from Fair Value Option the adoption of SFAS 157 and SFAS 159 related to Level 3 Commercial Mortgage Loans Held For Sale fair value measurements was approximately $1 million each. Effective January 1, 2008, we elected to account for commercial mortgage loans classified as held for sale and Net gains (realized and unrealized) relating to Level 3 assets intended for securitization at fair value under the provisions of and liabilities were $1 million for 2008. This amount included SFAS 159. Based on the significance of unobservable inputs, net unrealized losses of $209 million. These amounts were we classify this portfolio as Level 3. As such, a synthetic included in other noninterest income in the Consolidated securitization methodology was used historically to value the Income Statement. loans and the related unfunded commitments on an aggregate basis based upon current commercial mortgage-backed During 2008, securities transferred into Level 3 from Level 2 securities (CMBS) market structures and conditions. The exceeded securities transferred out by $4.3 billion. These election of the fair value option aligns the accounting for the primarily related to private issuer asset-backed securities, commercial mortgages with the related hedges. It also auction rate securities, residential mortgage-backed securities eliminates the requirements of hedge accounting under SFAS and corporate bonds and occurred due to reduced volume of 133. Due to the inactivity in the CMBS securitization market recently executed transactions and the lack of corroborating in 2008, we determined the fair value of commercial mortgage market price quotations for these instruments. Other Level 3 loans held for sale by using a whole loan valuation assets include commercial mortgage loans held for sale, methodology. Based on the significance of unobservable private equity investments and other assets. inputs, we classified this portfolio as Level 3. Valuation assumptions included observable inputs based on whole loan Nonrecurring Fair Value Changes sales, both observed in the market and actual sales from our We may be required to measure certain other financial assets portfolio and new loan origination spreads during the quarter. at fair value on a nonrecurring basis. These adjustments to fair Adjustments were made to the assumptions to account for value usually result from the application of uncertainties, including market conditions, and liquidity. lower-of-cost-or-market accounting or write-downs of Credit risk was included as part of our valuation process for individual assets due to impairment. The amounts below for these loans by considering expected rates of return for market nonaccrual loans and loans held for sale represent the carrying participants for similar loans in the marketplace. value of loans for which adjustments are primarily based on the appraised value of collateral or the present value of PNC has not elected the fair value option for the remainder of expected future cash flows, which often results in significant our loans held for sale portfolio as the amounts are not management assumptions and input with respect to the significant and hedge accounting is not used for these loans. determination of fair value. The fair value determination of the equity investment resulting in an impairment loss included At December 31, 2008, commercial mortgage loans held for below was based on observable market data for other sale for which the fair value option had been elected had an comparable entities as adjusted for internal assumptions and aggregate fair value of $1.4 billion and an aggregate unobservable inputs. The amounts below for commercial outstanding principal balance of $1.6 billion. mortgage servicing rights reflect an impairment of certain strata of these assets. The fair value of commercial mortgage Interest income on these loans is recorded as earned and servicing rights is estimated by using an internal valuation reported in the Consolidated Income Statement in the caption model. The model calculates the present value of estimated Interest Income – Other. Net losses resulting from changes in future net servicing cash flows considering estimates on fair value of these loans of $251 million for 2008 were servicing revenue and costs, discount rates and prepayment recorded in other noninterest income. The impact on earnings speeds. Annually, this model is subject to an internal review of offsetting hedges is not reflected in these amounts. Changes process to validate controls and model results. in fair value due to instrument-specific credit risk for 2008 were not material. The changes in fair value of these loans Fair Value Measurements – Nonrecurring were partially offset by changes in the fair value of the related

Total financial derivatives that economically hedged these loans. December 31, losses for 2008 year ended Total Fair December 31, Customer Resale Agreements and Bank Notes In millions Value (a) 2008 Effective January 1, 2008, we elected to account for structured Assets resale agreements and structured bank notes at fair value, Nonaccrual loans $250 $ (99) which are economically hedged using free-standing financial Loans held for sale 101 (2) Equity investment 75 (73) derivatives. Commercial mortgage servicing rights 560 (35) The fair value for structured resale agreements and structured Total assets $986 $(209) bank notes is determined using a model which includes (a) All Level 3. observable market data as inputs such as interest rates.

112 Readily observable market inputs to this model can be The following table summarizes the changes in fair value validated to external sources, including yield curves, implied included in other noninterest income in the Consolidated volatility or other market related data. Changes in fair value Income Statement for items for which we elected the fair due to instrument-specific credit risk for 2008 were not value option. material. At December 31, 2008, structured resale agreements with an aggregate fair value of $1.1 billion were included in Fair Value Option – Changes in Fair Value federal funds sold and resale agreements on our Consolidated Balance Sheet. The aggregate outstanding principal balance Total gains (losses) For the year ended was $980 million. Interest income on structured resale December 31, agreements is reported in the Consolidated Income Statement In millions 2008 in the caption Interest Income – Other. Assets Customer resale agreements (a) $ 69 The following table summarizes the financial instruments for Commercial mortgage loans held for sale (a) (251) which we elected the fair value option effective January 1, (a) The impact on earnings of offsetting hedges is not reflected in these amounts. 2008 and the related cumulative-effect adjustment to retained earnings. The following table provides fair values and aggregate unpaid principal balances of items for which we elected the fair value Fair Value Option – Adoption option.

Retained Earnings Fair Value Option – Fair Value and Principal Balances December 31, Net Gain January 1, In millions 2007 (Loss) 2008 Aggregate Unpaid Assets Fair Value Principal Balance December 31, December 31, Customer resale agreements (a) $ 738 $23 $ 761 In millions 2008 2008 Difference Commercial mortgage loans Customer resale held for sale 2,018 2 2,020 agreements $1,072 $ 980 $ 92 Liabilities Commercial mortgage Bank notes 11 11 loans held for sale Cumulative–effect Performing loans 1,376 1,572 (196) adjustment, before taxes 25 Nonaccrual loans 24 27 (3) Tax impact (9) Total 1,400 1,599 (199) Cumulative-effect adjustment, after taxes $16 (a) Includes structured resale agreements that are economically hedged with derivatives.

113 FAIR VALUE OF FINANCIAL INSTRUMENTS (SFAS 107)

2008 (a) 2007 Carrying Fair Carrying Fair December 31 – in millions Amount Value Amount Value Assets Cash and short-term assets $ 23,171 $ 23,171 $ 7,456 $ 7,456 Trading securities 1,725 1,725 3,556 3,556 Investment securities 43,473 43,406 30,225 30,225 Loans held for sale 4,366 4,366 3,927 3,966 Net loans (excludes leases) 165,112 162,159 64,976 65,808 Other assets 4,282 4,282 1,328 1,328 Mortgage and other loan servicing rights 1,890 1,899 701 780 Financial derivatives Fair value hedges 889 889 283 283 Cash flow hedges 527 527 325 325 Free-standing derivatives 7,088 7,088 2,163 2,163 Liabilities Demand, savings and money market deposits 116,946 116,946 56,294 56,294 Time deposits 75,919 76,205 26,402 26,416 Borrowed funds 52,872 53,063 31,254 31,608 Financial derivatives Fair value hedges 1193 93 Cash flow hedges Free-standing derivatives 6,057 6,057 2,298 2,298 Unfunded loan commitments and letters of credit 338 338 129 129 (a) Amounts include National City.

The aggregate fair values in the table above do not represent • interest-earning deposits with banks, the underlying market value of PNC as the table excludes the • federal funds sold and resale agreements, following: • cash collateral, • real and personal property, • customers’ acceptance liability, and • lease financing, • accrued interest receivable. • loan customer relationships, SECURITIES • deposit customer intangibles, Securities include both the investment securities and trading • retail branch networks, portfolios. We use prices sourced from pricing services, dealer • fee-based businesses, such as asset management and quotes or recent trades to determine the fair value of brokerage, and securities. Approximately 75% of our positions are valued • trademarks and brand names. using pricing services provided by the Lehman Index and Refer to Fair Value Measurement section of this Note 8 for a IDC. Lehman Index prices are set with reference to market definition of fair value. activity for highly liquid assets such as agency mortgage- backed securities, and matrix priced for other assets, such as We used the following methods and assumptions to estimate CMBS and asset-backed securities. IDC primarily uses matrix fair value amounts for financial instruments. pricing for the instruments we value using this service, such as agency adjustable rate mortgage securities, agency CMOs and GENERAL municipal bonds. Dealer quotes received are typically For short-term financial instruments realizable in three months non-binding and corroborated with other dealers’ quotes, by or less, the carrying amount reported in our Consolidated reviewing valuations of comparable instruments, or by Balance Sheet approximates fair value. Unless otherwise comparison to internal valuations. The majority of our stated, the rates used in discounted cash flow analyses are securities are classified as Level 2 in the fair value hierarchy. based on market yield curves. In circumstances where market prices are limited or unavailable, valuations may require significant management CASH AND SHORT-TERM ASSETS judgments or adjustments to determine fair value. In these The carrying amounts reported in the consolidated balance cases, the securities are classified as Level 3. sheet for cash and short-term investments approximate fair values primarily due to their short-term nature. For purposes NET LOANS AND LOANS HELD FOR SALE of this disclosure only, short-term assets include the Fair values are estimated based on the discounted value of following: expected net cash flows incorporating assumptions about • due from banks, prepayment rates, credit losses, servicing fees and costs. For

114 revolving home equity loans, this fair value does not include MORTGAGE AND OTHER LOAN SERVICING ASSETS any amount for new loans or the related fees that will be Fair value is based on the present value of the estimated future generated from the existing customer relationships. In the case cash flows, incorporating assumptions as to prepayment of nonaccrual loans, scheduled cash flows exclude interest speeds, discount rates, escrow balances, interest rates, cost to payments. Refer to the Fair Value Option section of this Note service and other factors. We have numerous controls in place 8 regarding the fair value of commercial mortgage loans held intended to ensure that our fair values are appropriate. An for sale. Residential mortgage loans are valued based on independent model review group reviews our valuation quoted market prices, where available, prices for other traded models and validates them for their intended use. mortgage loans with similar characteristics, and purchase commitments and bid information received from market For commercial mortgage loan servicing assets, key valuation participants. These loans are regularly traded in active markets assumptions at December 31, 2008 and December 31, 2007 and observable pricing information is available from market included prepayment rates ranging from 4% – 16% and 10% – participants. The prices are adjusted as necessary to include 16%, respectively, and discount rates ranging from 8% – 10% the embedded servicing value in the loans and to take into for both periods, which resulted in an estimated fair value of consideration the specific characteristics of certain loans that $873 million and $773 million, respectively. are priced based on the pricing of similar loans. These adjustments represent unobservable inputs to the valuation but For residential mortgage servicing assets, key assumptions at are not considered significant to the fair value of the loans. December 31, 2008 were a weighted average constant Loans are presented net of the allowance for loan and lease prepayment rate of 33%, weighted average life of 2.3 years losses. and a discount rate, calculated as the spread over forward interest rate swap rates of 6.37%, resulting in a fair value of OTHER ASSETS $1.0 billion. Other assets as shown in the accompanying table include the following: DEPOSITS • noncertificated interest-only strips, The carrying amounts of noninterest-bearing demand and • FHLB and FRB stock, interest-bearing money market and savings deposits • equity investments carried at cost and fair value, and approximate fair values. For time deposits, which include • private equity investments carried at fair value. foreign deposits, fair values are estimated based on the discounted value of expected net cash flows assuming current Investments accounted for under the equity method, including interest rates. our investment in BlackRock, are not included in the accompanying table. BORROWED FUNDS The carrying amounts of federal funds purchased, commercial The carrying amounts of private equity investments are paper, repurchase agreements, proprietary trading short recorded at fair value. The valuation procedures applied to positions, cash collateral, other short-term borrowings, direct investments include techniques such as multiples of acceptances outstanding and accrued interest payable are adjusted earnings of the entity, independent appraisals, considered to be their fair value because of their short-term anticipated financing and sales transactions with third parties, nature. For all other borrowed funds, fair values are estimated or the pricing used to value the entity in a recent financing based on dealer quotes. transaction. We value indirect investments in private equity funds based on the financial statements that we receive from UNFUNDED LOAN COMMITMENTS AND LETTERS OF their managers. Due to the time lag in our receipt of the CREDIT financial information and based on a review of investments The fair value of unfunded loan commitments and letters of and valuation techniques applied, adjustments to the manager credit is our estimate of the cost to terminate them. For provided value are made when available recent investment purposes of this disclosure, this fair value is the sum of the portfolio company or market information indicates a deferred fees currently recorded by us on these facilities and significant change in value from that provided by the general the liability established on these facilities related to their partner. creditworthiness.

Fair value of the noncertificated interest-only strips is FINANCIAL DERIVATIVES estimated based on the discounted value of expected net cash For exchange-traded contracts, fair value is based on quoted flows. The aggregate carrying value of our equity investments market prices. For nonexchange-traded contracts, fair value is carried at cost and FHLB and FRB stock was $3.1 billion at based on dealer quotes, pricing models or quoted prices for December 31, 2008 and $766 million as of December 31, instruments with similar characteristics. 2007, both of which approximate fair value at each date.

115 NOTE 9GOODWILL AND OTHER INTANGIBLE at December 31, 2008. Core deposits include noninterest and interest-bearing demand accounts, savings and money market ASSETS accounts. In addition, mortgage servicing rights increased $1.2 A summary of the changes in goodwill by business segment billion primarily related to the National City acquisition. The during 2008 follows: intangibles were valued utilizing a discounted cash flows model. Goodwill

Dec. 31 Additions/ Dec. 31 While certain of our other intangible assets have finite lives In millions 2007 Adjustments 2008 and are amortized primarily on a straight-line basis, Retail Banking $5,628 $354 $5,982 commercial mortgage and other loan servicing rights and Corporate & Institutional certain core deposit intangibles are amortized on an Banking 1,491 118 1,609 accelerated basis. Residential mortgage servicing rights are Global Investment Servicing 1,229 4 1,233 carried at fair value and not amortized. BlackRock 57 (13) 44 Total $8,405 $463 $8,868 For customer-related intangibles, the estimated remaining useful lives range from less than one year to 14 years, with a Assets and liabilities of acquired entities are recorded at weighted-average remaining useful life of approximately 10 estimated fair value as of the acquisition date and are subject years. Our commercial mortgage and other loan servicing to refinement as information relative to the fair values at that rights are amortized primarily over a period of 2 to 13 years in date becomes available. Revisions would likely result in proportion to the estimated net servicing cash flows from the subsequent adjustments to goodwill. The goodwill and other related loans. intangible assets related to Sterling are reported in the Retail Banking and Corporate & Institutional Banking business We recognize as an other intangible asset the right to service segments. mortgage loans for others. Commercial mortgage servicing rights are purchased in the open market and originated when At December 31, 2008, no goodwill was recognized in loans are sold with servicing retained. Commercial mortgage connection with the National City acquisition as the fair value servicing rights are initially recorded at fair value. These of net assets acquired exceeded the purchase price. The rights are subsequently measured using the amortization allocation of the purchase price may be modified through method. Accordingly, the commercial mortgage servicing 2009 as more information, such as appraisals, contracts, rights are amortized in proportion to and over the period of reviews of legal documentation, and selected key borrower estimated net servicing income. data, is obtained about the fair value of assets acquired and liabilities assumed and may result in goodwill. Residential mortgage servicing rights of $1 billion were recognized in connection with the acquisition of National The gross carrying amount, accumulated amortization and net City. We have elected to subsequently measure residential carrying amount of other intangible assets by major category mortgage servicing rights at fair value consistent with how we consisted of the following: manage the risk of these assets.

Other Intangible Assets Amortizable commercial mortgage servicing rights are periodically evaluated for impairment. For purposes of December 31 - in millions 2008 (a) 2007 impairment, the commercial mortgage servicing rights are Customer-related and other intangibles stratified based on asset type, which characterizes the Gross carrying amount $1,291 $ 708 predominant risk of the underlying financial asset. If the Accumulated amortization (361) (263) carrying amount of any individual stratum exceeds its fair Net carrying amount $ 930 $ 445 value, a valuation reserve is established with a corresponding Mortgage and other loan servicing rights charge to Corporate Services on our Consolidated Income Gross carrying amount $2,286 $1,001 Statement. Impairment charge (35) Accumulated amortization (361) (300) The fair value of commercial and residential mortgage Net carrying amount $1,890 $ 701 servicing rights is estimated by using an internal valuation Total $2,820 $1,146 model. The model calculates the present value of estimated (a) Amounts at December 31, 2008 include National City. future net servicing cash flows considering estimates on servicing revenue and costs, discount rates and prepayment Our acquisition of National City resulted in the addition of speeds. $569 million of core deposit and other relationship intangibles

116 Changes in the commercial mortgage servicing rights were as Our investment in BlackRock changes when BlackRock follows: repurchases its shares in the open market or issues shares for an acquisition or pursuant to its employee compensation plans. Commercial Mortgage Servicing Rights We adjust goodwill when BlackRock repurchases its shares at an amount greater (or less) than book value per share and this In millions 2008 2007 results in an increase (or decrease) in our percentage Balance at January 1 $694 $471 ownership interest. Additions (a) 300 310 Amortization expense (95) (87) We conduct a goodwill impairment test on our reporting units Balance at December 31 899 694 at least annually or more frequently if any adverse triggering Impairment charge (35) events occur. Based on the results of our analysis, there were Net carrying amount at December 31 $864 $694 no impairment charges related to goodwill recognized in 2008, (a) Includes $210 million in 2008 as part of the National City acquisition. 2007 or 2006. The fair value of our reporting units is determined by using discounted cash flow and market Servicing revenue from both commercial and residential comparability methodologies. mortgage servicing assets and liabilities generated contractually specified servicing fees, net interest income NOTE 10 SECURITIZATION ACTIVITY from servicing portfolio deposit balances, and ancillary fees We contributed commercial mortgage loans to securitizations totaling $171 million in 2008, $192 million in 2007 and $139 with servicing retained of $.4 billion in 2008 and $2.2 billion million in 2006. We also generate servicing revenue from in 2007 for cash in loan sales transactions. All loan amounts fee-based activities provided to others. are derecognized from our Consolidated Balance Sheet at the time of transfer. Mortgage servicing rights continue to be held Amortization expense on intangible assets for 2008, 2007 and by us as transferor. 2006 was $228 million, $173 million and $99 million, respectively. The 2008 amortization expense includes a $35 These transactions resulted in a pretax net loss including million impairment charge for certain mortgage servicing valuation adjustments of $22 million in 2008 and a pretax net rights due to the effect of lower interest rates. Amortization gain including valuation adjustments of $20 million in 2007. expense on existing intangible assets for 2009 through 2013 is We continue to perform servicing and recognized servicing estimated to be as follows: assets of $3 million in 2008 and $14 million in 2007 at the • 2009: $297 million, time of sale. • 2010: $232 million, • 2011: $227 million, In securitizations, loans are typically transferred to a • 2012: $206 million, and qualifying special purpose entity (“QSPE”) that is • 2013: $180 million. demonstrably distinct from the transferor to transfer the risks from our Consolidated Balance Sheet. A QSPE is a The changes in the carrying amount of goodwill and net other bankruptcy-remote trust allowed to perform only certain intangible assets during 2008 follows: passive activities. In addition, these entities are self- liquidating and typically structured as Real Estate Mortgage Changes in Goodwill and Other Intangibles Investment Conduits (“REMICs”) for tax purposes. The QSPEs are generally financed by issuing certificates for Customer- Servicing various levels of senior and subordinated tranches. QSPEs are In millions Goodwill Related Rights exempt from consolidation under the provisions of FIN 46R. Balance at December 31, 2007 $8,405 $445 $ 701 Additions/adjustments: These sale and servicing transactions are structured without National City acquisition 569 1,228 Sterling acquisition 593 21 4 recourse to us. Our exposure is limited to standard Hilliard Lyons divestiture (140) representations and warranties as seller of the loans and Harris Williams contingent responsibilities as servicer of the QSPE’s assets. In certain consideration 44 circumstances as a servicer for these entities, we advance Other acquisitions (21) (3) principal and interest payments to the securitization trust. We Mortgage and other loan servicing have a risk of loss if the borrower does not ultimately make rights 90 the principal and interest payment. However, the advance is BlackRock (13) senior secured above the highest rated tranche in the Other (7) securitization. Impairment charge (35) Amortization (98) (95) Also, in certain situations, we are named as special servicing Balance at December 31, 2008 $8,868 $930 $1,890 asset manager. The overall objective of the special servicer is to restore the defaulted loan to performing status or to develop

117 a disposition strategy that results in the highest recovery on a of the initial invested amount in each series to ensure net present value basis, thus protecting the interests of the trust sufficient assets are available for allocation to the investors’ and its investors. interests. Seller’s interest, which is recognized in portfolio loans on the Consolidated Balance Sheet, was well above the See Note 9 Goodwill and Other Intangible Assets for minimum level at December 31, 2008. additional information regarding servicing assets. Retained interests acquired consisted of seller’s interest, an With our acquisition of National City on December 31, 2008, interest-only strip, and asset-backed securities issued by the we acquired residual and other interests associated with credit card securitization QSPE. The initial carrying values of National City’s credit card, automobile, mortgage, and SBA these retained interests were determined based upon their fair loans securitizations. In addition, we also assumed certain values at December 31, 2008. Seller’s interest is recognized in continuing involvement activities in these securitization portfolio loans on the Consolidated Balance Sheet and totaled transactions. approximately $315 million at December 31, 2008. The interest-only strips are recognized in other assets on the The credit card, automobile, and mortgage securitizations Consolidated Balance Sheet and totaled approximately $20 were transacted through QSPEs sponsored by National City. million at December 31, 2008. The asset-backed securities are These QSPEs were financed primarily through the issuance recognized in investment securities on the Consolidated and sale of beneficial interests to independent third parties and Balance Sheet and totaled approximately $25 million at were not consolidated on National City’s balance sheet. December 31, 2008. These retained interests represent the Consolidation of these QSPEs could be considered if maximum exposure to loss associated with our involvement in circumstances or events subsequent to the securitization this securitization. transaction dates would cause the entities to lose their “qualified” status. No such events have occurred. Qualitative Automobile Loans and quantitative information about these securitizations At December 31, 2008, National City’s auto securitization follows. 2005-A was outstanding. Our continuing involvement in the securitized automobile loans consists primarily of servicing The following summarizes the assets and liabilities of the and limited requirements to repurchase transferred loans for National City-sponsored securitization QSPEs at breaches of representations and warranties. As servicer, we December 31, 2008. hold a cleanup call on the serviced loans which gives us an option to repurchase the transferred loans when their (In millions) Credit Card Automobile Mortgage outstanding principal balances reach 5% of the initial Assets (a) $2,129 $250 $319 outstanding principal balance of the automobile loans Liabilities 1,824 250 319 securitized. (a) Represents period-end outstanding principal balances of loans transferred to the securitization QSPEs. The Class A notes issued by National City’s 2005-A auto securitization were purchased by a third-party commercial Credit Card Loans paper conduit. National City’s subsidiary, National City Bank, At December 31, 2008, National City’s credit card along with other financial institutions, agreed to provide securitization series 2005-1, 2006-1, 2007-1, 2008-1, 2008-2, backup liquidity to the conduit. The conduit holds various and 2008-3 were outstanding. Our continuing involvement in third-party assets including beneficial interests in the cash the securitized credit cards receivables consists primarily of flows of trade receivables, credit cards and other financial servicing and a pro-rata undivided interest in all credit card assets. The conduit has no interests in subprime mortgage receivables, or seller’s interest, in the QSPE. Servicing fees loans. The conduit relies upon commercial paper for its earned approximate current market rates for servicing fees; funding. In the event of a disruption in the commercial paper therefore, no servicing asset or liability existed at markets, the conduit could experience a liquidity event. At December 31, 2008. We hold a clean-up call repurchase such time, the conduit may require National City Bank to option to the extent a securitization series extends past its purchase a 49% interest in a note representing a beneficial scheduled note principal payoff date. To the extent this occurs, interest in National City’s securitized automobile loans. the clean-up call option is triggered when the principal Another financial institution, affiliated with the conduit, has balance of the asset-backed notes of any series reaches 5% of committed to purchase the remaining 51% interest in this the initial principal balance of the asset-back notes issued at same note. Upon the conduit’s request, National City Bank the securitization date. Our seller’s interest ranks equally with would pay cash equal to the par value of the notes, less the the investors’ interests in the trust. As the amount of the assets corresponding portion of all defaulted loans, plus accrued in the securitized pool fluctuates due to customer payments, interest. In return, National City Bank would be entitled to purchases, cash advances, and credit losses, the carrying undivided interest in the cash flows of the collateral amount of the seller’s interest will vary. However, we are underlying the note. National City Bank receives an annual required to maintain seller’s interest at a minimum level of 5% commitment fee of 7 basis points for providing this backup

118 liquidity. As of December 31, 2008, the conduit has never The following is a summary of owned and securitized loans, experienced any difficulty in accessing the commercial paper which are managed on a combined basis. markets. Our acquired commitment declines commensurate with the unpaid principal balance of the automobile loans December 31, 2008 Principal Loans Past Due 30 securitized by National City. The commitment amount, which In Millions Balance Days or More totaled approximately $115 million at December 31, 2008, Loans managed represents our maximum exposure to the conduit. This Credit card $3,731 $177 commitment expires in December 2009 but may be renewed Automobile 289 13 annually for an additional 12 months by mutual agreement of Jumbo mortgages 866 78 the parties. SBA 118 8 Total loans managed $5,004 $276 Retained interests acquired consisted of an interest-only strip Less: Loans securitized and asset-backed securities issued by the automobile Credit card $1,824 $ 73 securitization QSPE. The interest-only strip and asset-backed Automobile 250 9 securities are recognized in other assets and investment Jumbo mortgages 319 5 securities, respectively, on the Consolidated Balance Sheet SBA 118 8 and their initial carrying value was determined based upon Total loans securitized $2,511 $ 95 their fair value at the date of acquisition. At December 31, 2008, the fair value of the interest-only strip and retained Less: Loans held for securitization asset-backed securities totaled approximately $9 million and Jumbo mortgages $ 9 $ 4 $15 million, respectively. These retained interests represent Loans held in portfolio $2,484 $177 the maximum exposure to loss associated with our involvement in this securitization.

Jumbo Mortgages At December 31, 2008, National City’s jumbo mortgage securitization series 2008-1 was outstanding. Our continuing involvement in the securitized mortgage loans consists primarily of servicing and limited requirements to repurchase transferred loans for breaches of representations and warranties. As servicer, we hold a cleanup call repurchase option when the outstanding principal balances of the transferred loans reach 5% of the initial outstanding principal balance of the mortgage loans securitized.

SBA Loans We have no continuing involvement in the SBA loans securitized by National City. The SBA loans were sold servicing released and National City was not the sponsor of the securitization’s special purpose entity.

Retained interests acquired consisted solely of interest-only strips. These retained interests are recognized in other assets on the Consolidated Balance Sheet, totaled approximately $3 million at December 31, 2008, and represent the maximum exposure to loss associated with our involvement in this securitization. The initial carrying value of these retained interests was determined based upon their fair value at the date of acquisition.

119 The tables below present the weighted-average assumptions used to measure the fair values of our acquired retained interests and servicing assets as of December 31, 2008. Fair value was determined by discounting the future cash flows of these assets. The sensitivity of these fair values to immediate 10% and 20% adverse changes in key assumptions is also shown. These sensitivities are hypothetical. Changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interests is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the sensitivities.

Credit Card Loans Variable Weighted- Annual Monthly Expected Average Coupon Principal Annual Annual December 31, 2008 Fair Life Rate To Repayment Credit Discount Dollars in millions Value (in months) Investors Rate Losses Rate Yield Interest-only strip (a) $19.6 3.3 1.19% 17.54% 5.18% 15.00% 12.55% Decline in fair value: 10% adverse change $ .1 $ 1.4 $ 2.3 $ 5.4 20% adverse change $ .3 $ 2.6 $ 4.7 $ 10.8 (a) Series 2005-1, 2006-1, 2007-1, 2008-1, 2008-2, and 2008-3.

Automobile Loans Expected Weighted- Monthly Cumulative Annual Weighted- December 31, 2008 Fair Average Life Prepayment Speed Credit Discount Average Dollars in millions Value (in months) (% ABS) (a) Losses Rate Coupon Interest-only strip (b) $9.2 1.7 1.26% 1.49% 12.00% 7.06% Decline in fair value: 10% adverse change $.2$ .5$.5 20% adverse change $ .4 $ .1 $ 1.0 Servicing asset (b) $ .6 2.6 1.26% 1.49% 10.00% 7.06% Decline in fair value: 10% adverse change 20% adverse change $.1 (a) Absolute prepayment speed. (b) Series 2005-A.

NOTE 11 PREMISES,EQUIPMENT AND $44 million in 2008, $40 million in 2007 and $44 million in 2006. LEASEHOLD IMPROVEMENTS Premises, equipment and leasehold improvements, stated at We lease certain facilities and equipment under agreements cost less accumulated depreciation and amortization, were as expiring at various dates through the year 2067. We account follows: for these as operating leases. Rental expense on such leases amounted to $202 million in 2008, $207 million in 2007 and December 31 - in millions 2008 (a) 2007 $193 million in 2006. Land $ 577 $ 250 Buildings 1,215 1,053 Required minimum annual rentals that we owe on Equipment 2,773 2,029 noncancelable leases having initial or remaining terms in Leasehold improvements 531 433 excess of one year totaled $2.6 billion at December 31, 2008 Total 5,096 3,765 and $1.2 billion at December 31, 2007. Minimum annual Accumulated depreciation and amortization (1,867) (1,764) rentals for the years 2009 through 2014 and thereafter are as Net book value $ 3,229 $ 2,001 follows: (a) Amounts at December 31, 2008 included $1.2 billion related to National City. • 2009: $329 million, • 2010: $309 million, Depreciation expense on premises, equipment and leasehold • 2011: $270 million, improvements totaled $225 million in 2008, $178 million in • 2012: $242 million, 2007 and $180 million in 2006. Amortization expense, • 2013: $217 million, and primarily for capitalized internally developed software, was • 2014 and thereafter: $1.2 billion.

120 NOTE 12 DEPOSITS Total borrowed funds of $52.2 billion at December 31, 2008 The aggregate amount of time deposits with a denomination of have scheduled or anticipated repayments for the years 2009 $100,000 or more was $26.8 billion at December 31, 2008 and through 2014 and thereafter as follows: $14.8 billion at December 31, 2007. • 2009: $18.6 billion, • 2010: $9.4 billion, Total time deposits of $75.9 billion at December 31, 2008 • 2011: $5.2 billion, have contractual maturities for the years 2009 through 2014 • 2012: $4.8 billion, and thereafter as follows: • 2013: $4.0 billion, and • 2009: $44.9 billion, • 2014 and thereafter: $10.2 billion. • 2010: $12.8 billion, • 2011: $4.9 billion, Included in borrowed funds are FHLB borrowings of $18.1 • 2012: $7.7 billion, billion at December 31, 2008, $9.0 billion of which are • 2013: $1.3 billion, and collateralized by a blanket lien on residential mortgage and • 2014 and thereafter: $4.3 billion. other real estate-related loans and mortgage-backed and treasury securities and $224 million are collateralized by pledged mortgage-backed and treasury securities. The NOTE 13 BORROWED FUNDS remaining $8.9 billion, assumed in the National City Bank notes at December 31, 2008 totaling $1.0 billion have acquisition, are collateralized by a blanket lien on residential interest rates ranging from 2.75% to 5.70% with mortgage and home equity loans and mortgage-backed approximately $500 million maturing in 2009. Senior and securities. FHLB advances of $5.1 billion have scheduled subordinated notes consisted of the following: maturities of less than one year. The remainder of the FHLB December 31, 2008 borrowings have balances that will mature from 2010 – 2030, Dollars in millions Outstanding Stated Rate Maturity with interest rates ranging from 0% – 7.33%. Senior $12,622 .23 – 5.50% 2009 – 2047 Subordinated As part of the National City acquisition, PNC assumed Junior 2,898 2.77 – 10.18% 2028 – 2068 liability for the conversion of $1.4 billion of convertible senior All other 8,310 2.35 – 9.65% 2009 – 2019 notes. Interest on these notes is payable semiannually at a Total subordinated 11,208 fixed rate of 4.0%. The maturity date of these notes is February 1, 2011. PNC may not redeem these notes prior to Total senior and subordinated $23,830 their maturity date. Holders may convert the notes, at their option, prior to November 15, 2010 under certain circumstances, including (i) if the trading price of the notes is Included in outstandings for the senior and subordinated notes less than a defined threshold measured against the market in the table above are basis adjustment increases of $81 value of PNC common stock, (ii) any time after March 31, million and $551 million, respectively, related to fair value 2008, if the market price of PNC common stock exceeds accounting hedges as of December 31, 2008. 130% of the conversion price of the notes in effect on the last trading day of the immediately preceding calendar quarter, or In December 2008, we issued the following senior notes (iii) upon the occurrence of certain specific events. After totaling $2.9 billion under the FDIC’s Temporary Liquidity November 15, 2010, the holders may convert their notes at Guarantee Program-Debt Guarantee Program: any time through the third scheduled trading date preceding • $2 billion of fixed rate senior notes due June 2012. the maturity date. The initial conversion rate equals 2.0725 These notes pay interest semiannually at a fixed rate shares per $1,000 face value of notes. The conversion rate will of 2.3%. be subject to adjustment for stock splits, stock dividends, cash • $500 million of fixed rate senior notes due June dividends in excess of certain thresholds, stock repurchases 2011. These notes pay interest semiannually at a where the price exceeds market values, and certain other fixed rate of 1.875%. events. Upon conversion, PNC will pay cash equal to the • $400 million of floating rate senior notes due June principal balance of the notes and may issue shares of its 2011. Interest will be reset quarterly to 3-month common stock for any conversion value, determined over a LIBOR plus 28 basis points and interest will be paid 40 day observation period, that exceeds the principal balance quarterly. of the notes being converted. The maximum number of net common shares that PNC may be required to issue is Each of these series of senior notes is guaranteed by the FDIC 3.6 million shares, subject to potential adjustment in the case and is backed by the full faith and credit of the United States of certain events, make-whole fundamental changes, or early of America through June 30, 2012. termination.

121 The holders of the convertible senior notes may elect: i) in the combinations, if PNC’s continuing directors are less than the case of a make-whole fundamental change, to convert the majority of the Board of Directors, a liquidation or notes prior to the effective time of such change, in which case dissolution, or PNC’s common stock is not listed on any the conversion rate will be increased as provided by a formula US national securities exchange. These rights may discourage set forth in the indenture supplement governing the a business combination or other transaction that is otherwise convertible senior notes; or ii) upon the effective time of any favored by certain shareholders. fundamental change, to require PNC to repurchase the convertible senior notes at their principal amount plus accrued The $2.9 billion of junior subordinated debt included in the but unpaid interest. Generally, a fundamental change includes above table represents the only debt redeemable prior to an acquisition of more than 50% of PNC’s common stock, maturity. The call price and related premiums are discussed in certain mergers, consolidations or other business Note 14 Capital Securities of Subsidiary Trusts.

122 NOTE 14 CAPITAL SECURITIES OF SUBSIDIARY TRUSTS At December 31, 2008, capital securities totaling $3.5 billion represented non-voting preferred beneficial interests in the assets of the following (Trusts acquired with National City follow in a separate table):

Trust Date Formed Description of Capital Securities Redeemable PNC Capital Trust C June 1998 $200 million due June 1, 2028, bearing On or after June 1, 2008 at par. interest at a floating rate per annum equal to 3-month LIBOR plus 57 basis points. The rate in effect at December 31, 2008 was 2.773%. PNC Capital Trust D December 2003 $300 million of 6.125% capital securities On or after December 18, 2008 at par. due December 15, 2033. PNC Capital Trust E February 2008 $450 million of 7.75% capital securities due On or after March 15, 2013 at par. * March 15, 2068. James Monroe Statutory Trust II July 2003 $4 million due July 31, 2033, bearing an On or after July 31, 2008 at par. interest rate equal to 3-month LIBOR plus 310 basis points. The rate in effect at December 31, 2008 was 4.559%. James Monroe Statutory Trust III September 2005 $8 million due December 15, 2035 at a On or after December 15, 2010. fixed rate of 6.253%. The fixed rate remains in effect until September 15, 2010 at which time the securities pay a floating rate of LIBOR plus 155 basis points. Yardville Capital Trust II June 2000 $15 million of 9.5% capital securities due On or after June 23, 2010 at par plus a June 22, 2030. premium of up to 4.75%. Yardville Capital Trust III March 2001 $6 million of 10.18% capital securities due On or after June 8, 2011 at par plus a June 2031. premium of up to 5.09%. Yardville Capital Trust IV February 2003 $15 million due March 1, 2033, bearing an On or after March 1, 2008 at par. interest rate equal to 3-month LIBOR plus 340 basis points. The rate in effect at December 31, 2008 was 5.581%. Yardville Capital Trust V September 2003 $10 million due October 8, 2033, bearing an On or after October 8, 2008 at par. interest rate equal to 3-month LIBOR plus 300 basis points. The rate in effect at December 31, 2008 was 7.819%. Yardville Capital Trust VI June 2004 $15 million due July 23, 2034, bearing an On or after July 23, 2009 at par. interest rate equal to 3-month LIBOR plus 270 basis points. The rate in effect at December 31, 2008 was 6.534%. Sterling Financial Statutory Trust II June 2003 $35 million due June 26, 2033 at a fixed rate On or after June 26, 2008 at par. of 5.55%. The fixed rate remained in effect until June 26, 2008 at which time the securities began paying a floating rate of 3- month LIBOR plus 310 basis points. The rate in effect at December 31, 2008 was 4.566%. Sterling Financial Statutory Trust III December 2004 $15 million due December 15, 2034 at a On or after December 15, 2009 at par. fixed rate of 6%. The fixed rate remains in effect until December 15, 2009 at which time the securities pay a floating rate of 3- month LIBOR plus 189 basis points. Sterling Financial Statutory Trust IV February 2005 $15 million due March 15, 2035 at a fixed On or after March 15, 2010 at par. rate of 6.19%. The fixed rate remains in effect until March 15, 2010 at which time the securities pay a floating rate of 3-month LIBOR plus 187 basis points. Sterling Financial Statutory Trust V March 2007 $20 million due March 15, 2037 at a fixed March 15, 2012 at par. rate of 7%. The fixed rate remained in effect until June 15, 2007 at which time the securities began paying a floating rate of 3- month LIBOR plus 165 basis points. The rate in effect at December 31, 2008 was 3.646%. * We may only redeem or repurchase the trust preferred securities of, and the junior subordinated notes payable to, PNC Capital Trust E prior to and including March 15, 2038 subject to having received proceeds of the issuance of certain qualified securities and subject to the other terms and conditions set forth in the applicable replacement capital covenant. As of December 31, 2008, the beneficiaries of this limitation are the holders of our $300 million of 6.125% Junior Subordinated Notes issued in December 2003.

123 Effective December 31, 2008, the following Trusts were added as part of the National City acquisition.

Trust Date Formed Description of Capital Securities Redeemable National City Preferred Capital Trust I January 2008 $500 million due December 10, 2043 at On or after December 10, 2016 at a fixed rate of 12.00%. The fixed rate par. ** remains in effect until December 10, 2012 at which time the interest rate resets to 3-month LIBOR plus 861 basis points. National City Capital Trust II November 2006 $750 million due November 15, 2066 On or after November 15, 2011 at at a fixed rate of 6.625%. The fixed par. *** rate remains in effect until November 15, 2036 at which time the securities pay a floating rate of one-month LIBOR plus 229 basis points. National City Capital Trust III May 2007 $500 million due May 25, 2067 at a On or after May 25, 2012 at par. *** fixed rate of 6.625%. The fixed rate remains in effect until May 25, 2047 at which time the securities pay a floating rate of one-month LIBOR plus 212.63 basis points. National City Capital Trust IV August 2007 $518 million due August 30, 2067 at a On or after August 30, 2012 at fixed rate of 8.00%. The fixed rate par. *** remains in effect until September 15, 2047 at which time the securities pay a floating rate of one-month LIBOR plus 348.7 basis points. MAF Bancorp Capital Trust I April 2005 $30 million due June 15, 2035 bearing On or after June 15, 2010 at par. an interest rate of 3-month LIBOR plus 175 basis points. The rate in effect at December 31, 2008 was 3.746%. MAF Bancorp Capital Trust II August 2005 $35 million due September 15, 2035 On or after September 15, 2010 at bearing an interest rate of 3-month par. LIBOR plus 140 basis points. The rate in effect at December 31, 2008 was 3.396%. Fidelity Capital Trust II December 2003 $22 million due January 23, 2034 On or after January 23, 2009 at par. bearing an interest rate of 3-month LIBOR plus 285 basis points. The rate in effect at December 31, 2008 was 6.315%. Fidelity Capital Trust III October 2004 $30 million due November 23, 2034 On or after November 23, 2009 at par. bearing an interest rate of 3-month LIBOR plus 197 basis points. The rate in effect at December 31, 2008 was 4.123%. ** We may only redeem or repurchase the trust preferred securities of, and the junior subordinated notes payable to, National City Preferred Capital Trust I prior to December 10, 2016, subject to having received proceeds from the issuance of certain qualified securities and subject to the other terms and conditions set forth in the applicable replacement capital covenant. As of December 31, 2008, the beneficiaries of this limitation are the holders of our $700 million of 6.875% subordinated notes due 2019. The Trust holds $500 million of 8.729% junior subordinated notes and 3.271% Stock Purchase Contracts issued by PNC. *** We may only redeem or repurchase the trust preferred securities of, and our junior subordinated notes payable to, National City Capital Trust II, III and IV more than 10 years in advance of their legal maturity dates, subject to having received proceeds from the issuance of certain qualified securities and subject to the other terms and conditions set forth in the applicable replacement capital covenant. As of December 31, 2008, the beneficiaries of this limitation are the holders of our $700 million of 6.875% subordinated notes due 2019.

124 All of these Trusts are wholly owned finance subsidiaries of Treasury under the TARP Capital Purchase Program as PNC. In the event of certain changes or amendments to described in Note 19 Shareholders’ Equity. regulatory requirements or federal tax rules, the capital securities are redeemable in whole. The financial statements NOTE 15 EMPLOYEE BENEFIT PLANS of the Trusts are not included in PNC’s consolidated financial PENSION AND POSTRETIREMENT PLANS statements in accordance with GAAP. We have a noncontributory, qualified defined benefit pension plan covering eligible employees. The plan derives benefits At December 31, 2008, PNC’s junior subordinated debt of from cash balance formulas based on compensation levels, age $2.9 billion, net of National City–related purchase accounting and length of service. Pension contributions are based on an adjustments, represented debentures purchased and held as actuarially determined amount necessary to fund total benefits assets by the Trusts. payable to plan participants. National City had a qualified pension plan covering substantially all employees hired prior The obligations of the respective parent of each Trust, when to April 1, 2006. Pension benefits are derived from a cash taken collectively, are the equivalent of a full and balance formula, whereby credits based on salary, age, and unconditional guarantee of the obligations of such Trust under years of service are allocated to employee accounts. The the terms of the Capital Securities. Such guarantee is National City plan was merged with our qualified pension subordinate in right of payment in the same manner as other plan on December 31, 2008. As of the plan merger date, no junior subordinated debt. There are certain restrictions on changes to either plan design or benefits occurred. PNC’s overall ability to obtain funds from its subsidiaries. For additional disclosure on these funding restrictions, including We also maintain nonqualified supplemental retirement plans an explanation of dividend and intercompany loan limitations, for certain employees. On December 31, 2008, the participants see Note 23 Regulatory Matters. of National City’s supplemental executive retirement plans became 100% vested due to the change in control. We also PNC is subject to restrictions on dividends and other provide certain health care and life insurance benefits for provisions similar to or in some ways more restrictive than qualifying retired employees (“postretirement benefits”) those potentially imposed under the Exchange Agreements through various plans. The nonqualified pension and with Trust II and Trust III, as described in Note 3 Variable postretirement benefit plans are unfunded. The Company Interest Entities. PNC is also subject to dividend restrictions reserves the right to terminate or make plan changes at any as a result of our issuance of preferred stock to the US time.

125 We use a measurement date of December 31 for plan assets and benefit obligations. A reconciliation of the changes in the projected benefit obligation for qualified pension, nonqualified pension and postretirement benefit plans as well as the change in plan assets for the qualified pension plan follows:

Qualified Nonqualified Postretirement Pension Pension Benefits December 31 (Measurement Date) – in millions 2008 2007 2008 2007 2008 2007 Accumulated benefit obligation at end of year $3,493 $1,436 $ 253 $ 109 Projected benefit obligation at beginning of year $1,507 $1,245 $ 113 $76 $ 243 $ 235 National City acquisition 2,109 145 105 Other acquisitions (a) 247 5 34 3 18 Service cost 44 42 2 2 3 3 Interest cost 86 82 6 6 15 14 Amendments (17) (5) Actuarial losses (gains) and changes in assumptions (18) (11) 2 4 (17) (2) EITF 06-4 adoption 29 Participant contributions 9 8 Federal Medicare subsidy on benefits paid 2 2 Benefits paid (94) (98) (10) (9) (33) (30) Projected benefit obligation at end of year $3,617 $1,507 $ 263 $ 113 $ 359 $ 243 Fair value of plan assets at beginning of year $2,019 $1,746 National City acquisition 2,032 Other acquisitions (a) 242 Actual return on plan assets (665) 129 Employer contribution $10 $9$22 $20 Participant contributions 9 8 Federal Medicare subsidy on benefits paid 2 2 Benefits paid (94) (98) (10) (9) (33) (30) Fair value of plan assets at end of year $3,292 $2,019 Funded status $ (325) $ 512 $(263) $(113) $(359) $(243) Net amount recognized on the balance sheet $ (325) $ 512 $(263) $(113) $(359) $(243) Amounts recognized in accumulated other comprehensive income consist of: Prior service cost (credit) (12) 2 (22) (29) Net actuarial loss 1,004 198 30 30 14 31 Amount recognized in AOCI $ 992 $ 200 $30 $30 $ (8) $2 (a) Sterling in 2008; Mercantile and Yardville in 2007.

The fair value of the qualified pension plan assets is less than estate investments. Plan assets do not include common stock, both the accumulated benefit obligation and the projected preferred stock or debt of PNC. benefit obligation. The nonqualified pension plan, which contains several individual plans that are accounted for The Pension Plan Administrative Committee (the together, is unfunded. Contributions from us and, in the case “Committee”) adopted the current Pension Plan Investment of postretirement benefit plans, participant contributions cover Policy Statement, including the updated target allocations and all benefits paid under the nonqualified pension plan and allowable ranges shown below, on August 13, 2008. postretirement benefit plans. The postretirement plan provides benefits to certain retirees that are at least actuarially The long-term investment strategy for pension plan assets is equivalent to those provided by Medicare Part D and to: accordingly, we receive a federal subsidy as shown in the • Meet present and future benefit obligations to all table. participants and beneficiaries, • Cover reasonable expenses incurred to provide such PNC PENSION PLAN ASSETS benefits, including expense incurred in the Assets related to our qualified pension plan (the “Plan”) are administration of the Trust and the Plan, held in trust (the “Trust”). The trustee is PNC Bank, N.A. The • Provide sufficient liquidity to meet benefit and Trust is exempt from tax pursuant to section 501(a) of the expense payment requirements on a timely basis, and Internal Revenue Code (the “Code”). The Plan is qualified • Provide a total return that, over the long term, under section 401(a) of the Code. Plan assets consist primarily maximizes the ratio of trust assets to liabilities by of listed domestic and international equity securities and US maximizing investment return, at an appropriate level government, agency, and corporate debt securities and real of risk.

126 The Plan’s specific investment objective is to meet or exceed The Committee selects investment managers for the Trust the investment policy benchmark over the long term. The based on the contributions that their respective investment investment policy benchmark compares actual performance to styles and processes are expected to make to the investment a weighted market index, and measures the contribution of performance of the overall portfolio. The managers’ active investment management and policy implementation. Investment Objectives and Guidelines, which are a part of This investment objective is expected to be achieved over the each manager’s Investment Management Agreement, long term (one or more market cycles) and is measured over document performance expectations and each manager’s role rolling five-year periods. Total return calculations are time- in the portfolio. The Committee uses the Investment weighted and are net of investment-related fees and expenses. Objectives and Guidelines to establish, guide, control and measure the strategy and performance for each manager. The asset strategy allocations for the Trust at the end of 2008 and 2007, and the target allocation range, by asset category, The purpose of investment manager guidelines is to: are as follows: • Establish the investment objective and performance standards for each manager, Target Percentage of Plan Assets Allocation by Strategy at • Provide the manager with the capability to evaluate Range December 31 the risks of all financial instruments or other assets in PNC Pension Plan 2008 2007 which the manager’s account is invested, and Asset Category • Prevent the manager from exposing its account to Equity securities 49-69% 58% 62% excessive levels of risk, undesired or inappropriate Fixed income securities 32-39% 39% 34% risk, or disproportionate concentration of risk. Real estate 4-6% 3% 4% The guidelines also indicate which investments and strategies Other 0-5% — — the manager is permitted to use to achieve its performance Total 100% 100% objectives, and which investments and strategies it is prohibited from using. The asset category represents the allocation of Plan assets in accordance with the investment objective of each of the Plan’s Where public market investment strategies may include the investment managers. Certain domestic equity investment use of derivatives and/or currency management, language is managers utilize derivatives and fixed income securities as incorporated in the managers’ guidelines to define allowable described in their Investment Management Agreements to and prohibited transactions and/or strategies. Derivatives are achieve their investment objective under the Investment typically employed by investment managers to modify risk/ Policy Statement. Other investment managers may invest in return characteristics of their portfolio(s), implement asset eligible securities outside of their assigned asset category to allocation changes in a cost-effective manner, or reduce meet their investment objectives. The actual percentage of the transaction costs. Under the managers’ investment guidelines, fair value of total plan assets held as of December 31, 2008 for derivatives may not be used solely for speculation or leverage. equity securities, fixed income securities, real estate and all Derivatives are used only in circumstances where they offer other assets are 32%, 55%, 0%, and 13%, respectively. the most efficient economic means of improving the risk/ reward profile of the portfolio. We believe that, over the long term, asset allocation is the single greatest determinant of risk. Asset allocation will BlackRock, Global Investment Servicing and our Retail deviate from the target percentages due to market movement, Banking business segments receive compensation for cash flows, and investment manager performance. Material providing investment management, trustee and custodial deviations from the asset allocation targets can alter the services for the majority of the Trust portfolio. Compensation expected return and risk of the Trust. On the other hand, for such services is paid by PNC. Non-affiliate service frequent rebalancing to the asset allocation targets may result providers for the Trust are compensated from plan assets. in significant transaction costs, which can impair the Trust’s ability to meet its investment objective. Accordingly, the Trust NATIONAL CITY PENSION PLAN ASSETS portfolio is periodically rebalanced to maintain asset Assets related to the pension plan investments of the former allocation within the target ranges described above. National City qualified pension plan are held in trust. The trustee is National City Bank. The Trust is exempt from tax In addition to being diversified across asset classes, the Trust pursuant to section 501(a) of the Code. The plan is qualified is diversified within each asset class. Secondary under section 401(a) of the Code. Plan assets consist primarily diversification provides a reasonable basis for the expectation of listed domestic and international equity securities and US that no single security or class of securities will have a government, agency, and corporate debt securities and real disproportionate impact on the total risk and return of the estate investments. Plan assets do include common stock of Trust. PNC as discussed below.

127 The asset allocation for National City’s defined benefit with PNC’s acquisition of National City, these shares were pension plan as of the measurement date, by asset category is exchanged into 197,914 shares of PNC common stock. as follows: The following table provides information regarding our Percentage of Plan Assets estimated future cash flows related to our various plans, National City Pension Plan December 31 2008 including the impact of the National City plans: Asset Category Equity securities 42% ESTIMATED CASH FLOWS Fixed income securities 9% Cash and cash equivalents 49% Postretirement Benefits Reduction Total 100% in PNC Benefit Payments Gross Due to The investment objective for the National City qualified PNC Medicare Qualified Nonqualified Benefit Part D pension plan is to maximize total return with tolerance for In millions Pension Pension Payments Subsidy slightly above average risk. Asset allocation strongly favors Estimated 2009 equities, with a target allocation of approximately 80% equity employer securities, 15% fixed income securities, and 5% cash. Due to contributions — $ 29 $ 35 $2 volatility in the market, the target allocation is not always Estimated future desirable as asset allocations will fluctuate. A core equity benefit position of large cap stocks will be maintained. However, payments more aggressive or volatile sectors will be meaningfully 2009 $ 247 $ 29 $ 35 $2 represented in the asset mix in pursuit of higher returns. 2010 253 30 36 2 Higher volatility investment strategies such as credit risk, 2011 262 28 34 2 structured finance, and international bonds will be appropriate 2012 267 28 34 2 strategies in conjunction with the core position. As of 2013 277 25 34 2 December 31, 2008, the plan had a temporary large cash and 2014 – 2018 1,499 109 164 9 cash equivalents balance due to a contribution of $850 million made by National City to the plan on December 30, 2008 The qualified pension plan contributions are deposited into the which had not yet been fully invested. Trust, and the qualified pension plan benefit payments are paid from the Trust. For the other plans, total contributions Equity securities included $9 million of National City and the benefit payments are the same and represent expected common stock at December 31, 2008, representing benefit amounts, which are paid from general assets. 5,048,833 shares at a closing price of $1.81. In conjunction Postretirement benefits are net of participant contributions.

The components of net periodic benefit cost/ (income) and other amounts recognized in other comprehensive income were as follows. This table excludes the impact of the National City plans which we acquired on December 31, 2008.

Qualified Pension Plan Nonqualified Pension Plan Postretirement Benefits Year ended December 31 – in millions 2008 2007 2006 2008 2007 2006 2008 2007 2006 Net periodic cost consists of: Service cost $44 $42$34 $2 $2 $1 $3 $3 $2 Interest cost 86 82 68 6 64 15 14 13 Expected return on plan assets (160) (156) (129) Amortization of prior service cost (2) (1) (7) (7) (6) Amortization of actuarial losses 2 16 2 23 1 Net periodic cost $ (32) $ (30) $ (12) $10 $10 $8 $11 $10 $10 Other changes in plan assets and benefit obligations recognized in other comprehensive income: Current year prior service cost/(credit) $ (17) $ (5) Amortization of prior service (cost)/credit 2$77 Current year actuarial loss/(gain) 807 $16 $2 $4 (17) (2) Amortization of actuarial (loss)/gain (2) (2) (2) Total recognized in OCI 792 14 2 (10) Total recognized in net periodic cost and OCI $ 760 $ (16) $10 $12 $1 $10

128 The weighted-average assumptions used (as of the beginning The health care cost trend rate assumptions shown in the of each year) to determine net periodic costs shown above preceding tables relate only to the postretirement benefit were as follows: plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects: Net Periodic Cost Determination Year ended December 31, 2008 Year ended December 31 2008 2007 2006 In millions Increase Decrease Discount rate Effect on total service and interest cost $1 — Qualified pension 5.95% 5.70% 5.50% Effect on year-end benefit obligation 9 $ (8) Nonqualified pension 5.75 5.60 5.40 Postretirement benefits 5.95 5.80 5.60 Rate of compensation increase (average) 4.00 4.00 4.00 Under SFAS 158, unamortized actuarial gains and losses and Assumed health care cost trend rate prior service costs and credits are recognized in AOCI each Initial trend 9.50 10.00 10.00 December 31, while amortization of these amounts through Ultimate trend 5.00 5.00 5.00 net periodic benefit cost occurs in accordance with SFAS 87 Year ultimate reached 2014 2012 2011 and SFAS 106. The estimated amounts that will be amortized Expected long-term return on plan assets 8.25 8.25 8.25 in 2009 are as follows:

The weighted-average assumptions used (as of the end of each 2009 Estimate Year ended December 31 Qualified Nonqualified Postretirement year) to determine year-end obligations for pension and In millions Pension Pension Benefits postretirement benefits were as follows: Prior service cost (credit) $ (2) — $ (5) Net actuarial loss 80 — — At December 31 2008 2007 Total $78 — $ (5) Discount rate Qualified pension 6.05% 5.95% DEFINED CONTRIBUTION PLANS Nonqualified pension 5.90 5.75 We have a contributory, qualified defined contribution plan Postretirement benefits 5.95 5.95 that covers substantially all employees except those covered Rate of compensation increase (average) 4.00 4.00 by other plans as identified below. Under this plan, employee Assumed health care cost trend rate contributions up to 6% of eligible compensation as defined by Initial trend 9.00 9.50 the plan are matched 100%, subject to Code limitations. The Ultimate trend 5.00 5.00 plan is a 401(k) plan and includes an employee stock Year ultimate reached 2014 2014 ownership (“ESOP”) feature. Employee contributions are invested in a number of investment options available under the The discount rate assumptions were determined independently plan, including a PNC common stock fund and several for each plan reflecting the duration of each plan’s BlackRock mutual funds, at the direction of the employee. All obligations. Specifically, a yield curve was produced for a shares of PNC common stock held by the plan are part of the universe containing the majority of US-issued Aa grade ESOP. Employee contributions to the plan for 2008, 2007 and corporate bonds, all of which were non-callable (or callable 2006 were matched primarily by shares of PNC common with make-whole provisions). Excluded from this yield curve stock held in treasury, except in the case of those participants were the 10% of the bonds with the highest yields and the who have exercised their diversification election rights to have 10% with the lowest yields. For each plan, the discount rate their matching portion in other investments available within was determined as the level equivalent rate that would the plan. Employee benefits expense related to this plan was produce the same present value obligation as that using spot $57 million in 2008, $52 million in 2007 and $52 million in rates aligned with the projected benefit payments. 2006. We measured employee benefits expense as the fair value of the shares and cash contributed to the plan by PNC. The expected return on plan assets is a long-term assumption established by considering historical and anticipated returns of We have a separate qualified defined contribution plan that the asset classes invested in by the pension plan and the covers substantially all US-based Global Investment Servicing allocation strategy currently in place among those classes. We employees not covered by our plan. The plan is a 401(k) plan review this assumption at each measurement date and adjust it and includes an ESOP feature. Under this plan, employee if warranted. contributions of up to 6% of eligible compensation as defined

129 by the plan may be matched annually based on Global Generally, options granted under the Incentive Plans vest Investment Servicing performance levels. Participants must be ratably over a three-year period as long as the grantee remains employed as of December 31 of each year to receive this an employee or, in certain cases, retires from PNC. For all annual contribution. The performance-based employer options granted prior to the adoption of SFAS 123R, we matching contribution will be made primarily in shares of recognized compensation expense over the three-year vesting PNC common stock held in treasury, except in the case of period. If an employee retired prior to the end of the three- those participants who have exercised their diversification year vesting period, we accelerated the expensing of all election rights to have their matching portion in other unrecognized compensation costs at the retirement date. As investments available within the plan. Mandatory employer required under SFAS 123R, we recognize compensation contributions to this plan are made in cash and include expense for options granted to retirement-eligible employees employer basic and transitional contributions. Employee- after January 1, 2006 during the first twelve months directed contributions are invested in a number of investment subsequent to the grant, in accordance with the service period options available under the plan, including a PNC common provisions of the options. stock fund and several BlackRock mutual funds, at the direction of the employee. Employee benefits expense for this During the third quarter of 2008, we granted approximately plan was $11 million in 2008, $10 million in 2007 and $9 one million options to certain senior executives. While these million in 2006. We measured employee benefits expense as options generally contain the same terms and conditions as the fair value of the shares and cash contributed to the plan. previous option grants, cliff vesting will occur on or after the third anniversary from the grant date if the market price of We also maintain a nonqualified supplemental savings plan PNC stock exceeds the grant date price by 20% or more over a for certain employees. specified time period. These options were approved by the Personnel and Compensation Committee of the Board of We also maintain a defined contribution plan for National City Directors. The grant date fair value was $6.59 per option. legacy employees. Substantially all National City legacy employees are eligible to contribute a portion of their pretax OPTIONS ISSUED FOR STERLING ACQUISITION compensation to the plan. PNC may make contributions to the On April 4, 2008, in connection with the closing of the plan for employees with one or more years of service in the Sterling acquisition, we issued 325,489 PNC stock options form of company common stock in varying amounts upon conversion of all outstanding and unexercised Sterling depending on participant contribution levels. PNC reserves the options at that date. Of the total options issued, 159,676 were right to terminate or make plan changes at any time. issued as nonqualified stock options, and the remaining 165,813 were issued as incentive stock options. These PNC options carry generally the same terms and conditions as the NOTE 16 STOCK-BASED COMPENSATION original Sterling options. Per the merger agreement, all PLANS outstanding options were deemed fully vested at the We have long-term incentive award plans (“Incentive Plans”) acquisition date. Accordingly, no ongoing stock option that provide for the granting of incentive stock options, expense will be recognized for these options. The purchase nonqualified stock options, stock appreciation rights, incentive price consideration for the Sterling acquisition included shares/performance units, restricted stock, restricted share approximately $3.3 million related to these options. units, other share-based awards and dollar-denominated awards to executives and, other than incentive stock options, OPTIONS ISSUED FOR NATIONAL CITY ACQUISITION to non-employee directors. Certain Incentive Plan awards may On December 31, 2008, in connection with the closing of the be paid in stock, cash or a combination of stock and cash. We National City acquisition, we issued approximately 1.7 million grant a substantial portion of our stock-based compensation PNC stock options upon conversion of all outstanding and awards during the first quarter of the year. As of unexercised National City options at that date. Of the total December 31, 2008, no stock appreciation rights were options issued, approximately 1.4 million were issued as outstanding. nonqualified stock options, and the remaining 0.3 million were issued as incentive stock options. These PNC options NONQUALIFIED STOCK OPTIONS carry generally the same terms and conditions as the original Options are granted at exercise prices not less than the market National City options. Per the merger agreement, all value of common stock on the grant date. Generally, options outstanding options were deemed fully vested at the granted since 1999 become exercisable in installments after acquisition date. Accordingly, no ongoing stock option the grant date. Options granted prior to 1999 are mainly expense will be recognized for these options. The purchase exercisable 12 months after the grant date. No option may be price consideration for the National City acquisition included exercisable after 10 years from its grant date. Payment of the approximately $2.0 million related to these options. option exercise price may be in cash or shares of common stock at market value on the exercise date. The exercise price may be paid in previously owned shares.

130 A summary of stock option activity follows: As permitted under SFAS 123R, we recognized compensation expense for stock options on a straight-line basis over the pro Weighted- rata vesting period. Total compensation expense recognized Weighted- average Year ended December 31, 2008 average remaining Aggregate related to PNC stock options in 2008 was $22 million In thousands, except exercise contractual intrinsic weighted-average data Shares price life value compared with $29 million in 2007 and $31 million in 2006. Outstanding, January 1 14,326 $ 62.15 Granted 3,308 60.35 Awards granted to non-employee directors in 2008 and 2007 Sterling acquisition 325 63.94 include 25,381 and 20,944 deferred stock units, respectively, Exercised (3,175) 55.11 awarded under the Outside Directors Deferred Stock Unit Cancelled (247) 57.97 Plan. A deferred stock unit is a phantom share of our common Prior to National City stock, which requires liability accounting treatment under acquisition 14,537 63.39 SFAS 123R until such awards are paid to the participants as National City acquisition 1,744 636.31 cash. As there are no vesting or service requirements on these Outstanding, December 31 16,281 $124.75 5.6 years $4,909 awards, total compensation expense is recognized in full on all Vested and expected to awarded units on the date of grant. vest, December 31 (a) 15,971 $125.90 5.6 years $4,909 Exercisable, December 31 11,373 $151.03 4.3 years $4,909 OPTION PRICING ASSUMPTIONS (a) Adjusted for estimated forfeitures on unvested options. For purposes of computing stock option expense, we estimated the fair value of stock options primarily by using the The weighted-average grant-date fair value of options granted Black-Scholes option-pricing model. Option pricing models in 2008, 2007 and 2006 was $7.27, $11.37 and $10.75 per require the use of numerous assumptions, many of which are option, respectively. To determine stock-based compensation very subjective. expense under SFAS 123R, the grant-date fair value is applied to the options granted with a reduction made for estimated We used the following assumptions in the option pricing forfeitures. models to determine 2008, 2007 and 2006 stock option expense: At December 31, 2007 and 2006, options for 10,496,000 and • The risk-free interest rate is based on the US 10,743,000 shares of common stock, respectively, were Treasury yield curve, exercisable at a weighted-average price of $59.95 and $58.38, • The dividend yield represents average yields over the respectively. The total intrinsic value of options exercised previous three-year period, during 2008, 2007 and 2006 was $59 million, $52 million and • Volatility is measured using the fluctuation in $111 million, respectively. month-end closing stock prices over a period which corresponds with the average expected option life, Cash received from option exercises under all Incentive Plans but in no case less than a five-year period, and for 2008, 2007 and 2006 was approximately $167 million, • The expected life assumption represents the period of $111 million and $233 million, respectively. The actual tax time that options granted are expected to be benefit realized for tax deduction purposes from option outstanding and is based on a weighted average of exercises under all Incentive Plans for 2008, 2007 and 2006 historical option activity. was approximately $58 million, $39 million and $82 million, respectively. Weighted-average for the year ended December 31 2008 2007 2006 There were no options granted in excess of market value in Risk-free interest rate 3.1% 4.8% 4.5% 2008, 2007 or 2006. Shares of common stock available during Dividend yield 3.3 3.4 3.7 the next year for the granting of options and other awards Volatility 18.5 18.8 20.5 under the Incentive Plans were 36,307,172 at December 31, Expected life 5.7 yrs. 4.3 yrs. 5.1 yrs. 2008. Total shares of PNC common stock authorized for future issuance under equity compensation plans totaled INCENTIVE/PERFORMANCE UNIT SHARE AWARDS AND 37,842,957 shares at December 31, 2008, which includes RESTRICTED STOCK/UNIT AWARDS shares available for issuance under the Incentive Plans, the The fair value of nonvested incentive/performance unit share Employee Stock Purchase Plan as described below, and a awards and restricted stock/unit awards is initially determined director plan. based on prices not less than the market value of our common stock price on the date of grant. Incentive/performance unit During 2008, we issued approximately 3.1 million shares from share awards are subsequently valued subject to the treasury stock in connection with stock option exercise achievement of one or more financial and other performance activity. As with past exercise activity, we intend to utilize goals over a three-year period. The Personnel and treasury stock for future stock option exercises. Compensation Committee of the Board of Directors approves

131 the final award payout with respect to incentive/performance Additionally, beginning in 2008, we granted other cash- unit share awards. Restricted stock/unit awards have various payable restricted share units to certain executives. The grants vesting periods ranging from 12 months to 60 months. There were made primarily as part of an annual bonus incentive are no financial or performance goals associated with any of deferral plan. While there are time-based, service-related our restricted stock/unit awards. vesting criteria, there are no market or performance criteria associated with these awards. Compensation expense The weighted-average grant-date fair value of incentive/ recognized related to these awards was recorded in prior performance unit share awards and restricted stock/unit periods as part of annual cash bonus criteria. As of awards granted in 2008, 2007 and 2006 was $59.25, $73.83 December 31, 2008, there were 91,449 of these cash-payable and $67.36 per share, respectively. We recognize restricted share units outstanding. compensation expense for such awards ratably over the corresponding vesting and/or performance periods for each A summary of all nonvested, cash-payable restricted share type of program. Total compensation expense recognized unit activity follows: related to incentive/performance unit share awards and restricted stock/unit awards during 2008 was approximately Nonvested Cash- $51 million compared with $42 million in 2007 and $45 Payable Restricted Aggregate million in 2006. Unit Intrinsic In thousands Shares Value A summary of nonvested incentive/performance unit shares Outstanding, January 1, 2008 57 and restricted stock/unit share activity follows: Granted 145 Outstanding, December 31, 2008 (a) 202 $9,878 Weighted- Nonvested Weighted- Nonvested Average Restricted Average (a) There were no share units vested and received or forfeited during 2008. Incentive/ Grant Stock/ Grant Performance Date Fair Unit Date Fair Shares in thousands Unit Shares Value Shares Value Total compensation expense recognized related to liability Dec. 31, 2007 316 $66.28 1,869 $60.20 awards, including market valuation adjustments recorded Granted 176 53.27 548 55.20 during 2008 on these awards, resulted in a net reduction to Vested (652) 50.92 expense of approximately $1.1 million. The corresponding Forfeited (30) 62.75 amounts for 2007 and 2006 were approximately $1 million of Dec. 31, 2008 492 $61.63 1,735 $62.07 net expense recognized in each year.

In the chart above, the weighted-average grant-date fair value EMPLOYEE STOCK PURCHASE PLAN of incentive/performance unit share awards and restricted As of December 31, 2008, our ESPP has approximately stock/unit awards is measured by reducing the grant date price 1.2 million shares available for issuance. Full-time employees by the present value of dividends expected to be paid on the with six months and part-time employees with 12 months of underlying shares and for estimated forfeitures on restricted continuous employment with us are eligible to participate in stock/unit awards. the ESPP at the commencement of the next six-month offering period. Eligible participants may purchase our common stock At December 31, 2008, there was $39 million of unrecognized at 95% of the fair market value on the last day of each deferred compensation expense related to nonvested share- six-month offering period. No charge to earnings is recorded based compensation arrangements granted under the Incentive with respect to the ESPP. Plans. This cost is expected to be recognized as expense over a period of no longer than five years. The total fair value of Shares issued pursuant to the ESPP were as follows: incentive/performance unit share and restricted stock /unit awards vested during 2008, 2007 and 2006 was approximately Year ended December 31 Shares Price Per Share $41 million, $79 million and $63 million, respectively. 2008 133,563 $54.25 and $46.55 2007 111,812 68.00 and 62.37 LIABILITY AWARDS 2006 105,041 66.66 and 70.34 In 2008, 2007 and 2006 we granted a performance unit incentive award each year to a senior executive. The grant is BLACKROCK LTIP PROGRAMS share-denominated with an initial specified target number of BlackRock adopted the 2002 LTIP program to help attract and 47,000 share units for 2008, 26,400 share units for 2007 and retain qualified professionals. At that time, PNC agreed to 30,000 share units for 2006. The potential award is dependent transfer up to four million of the shares of BlackRock on the achievement of certain performance criteria over a common stock then held by us to help fund the 2002 LTIP and three-year period ending December 31, 2008 for the 2006 future programs approved by BlackRock’s board of directors, grant, December 31, 2009 for the 2007 grant, and subject to certain conditions and limitations. Prior to 2006, December 31, 2010 for the 2008 grant. Final awarded BlackRock granted awards of approximately $233 million performance units will be paid only in cash. under the 2002 LTIP program, of which approximately $208

132 million were paid on January 30, 2007. The award payments Cash Flow Hedging Strategies were funded by 17% in cash from BlackRock and We enter into interest rate swap contracts to modify the approximately one million shares of BlackRock common interest rate characteristics of designated commercial loans stock transferred by PNC and distributed to LTIP participants. from variable to fixed in order to reduce the impact of changes As permitted under the award agreements, employees elected in future cash flows due to interest rate changes. We hedged to put 95% of the stock portion of the awards back to our exposure to the variability of future cash flows for all BlackRock. These shares were retained by BlackRock as forecasted transactions for a maximum of 10 years for hedges treasury stock. We recognized a pretax gain of $82 million in converting floating-rate commercial loans to fixed. The fair the first quarter of 2007 from the transfer of BlackRock value of these derivatives is reported in other assets or other shares. The gain was included in other noninterest income and liabilities and offset in accumulated other comprehensive reflected the excess of market value over book value of the income (loss) for the effective portion of the derivatives. We one million shares transferred in January 2007. Additional subsequently reclassify any unrealized gains or losses related BlackRock shares were distributed to LTIP participants during to these swap contracts from accumulated other the first quarter of 2008, resulting in a $3 million pretax gain comprehensive income (loss) into interest income in the same in other noninterest income. period or periods during which the hedged forecasted transaction affects earnings. Ineffectiveness of the strategies, BlackRock granted awards in 2007 under an additional LTIP if any, is recognized immediately in earnings. program, all of which are subject to achieving earnings performance goals prior to the vesting date of September 29, During the next twelve months, we expect to reclassify to 2011. Of the shares of BlackRock common stock that we have earnings $230 million of pretax net gains, or $149 million agreed to transfer to fund their LTIP programs, approximately after-tax, on cash flow hedge derivatives currently reported in 1.6 million shares have been committed to fund the awards accumulated other comprehensive loss. This amount could vesting in 2011 and the amount remaining would then be differ from amounts actually recognized due to changes in available for future awards. interest rates and the addition of other hedges subsequent to December 31, 2008. These net gains are anticipated to result Noninterest income for 2008 included a $243 million pretax from net cash flows on receive fixed interest rate swaps that gain related to our commitment to fund additional BlackRock would impact interest income recognized on the related LTIP programs. This gain represented the mark-to-market floating rate commercial loans. adjustment related to our remaining BlackRock LTIP common shares obligation as of December 31, 2008 and resulted from As of December 31, 2008 we have determined that there were the decrease in the market value of BlackRock common shares no hedging positions where it was probable that certain for 2008. Noninterest income for 2007 and 2006 included forecasted transactions may not occur within the originally pretax charges totaling $209 million and $12 million, designated time period. respectively, related to an increase in the market value of BlackRock common shares for these periods. The ineffective portion of the change in value of our fair value and cash flow hedge derivatives resulted in a net gain of $8 Additionally, we reported noninterest expense of $33 million million for 2008, a net loss of $1 million for 2007, and a net in 2006 related to the BlackRock LTIP awards. loss of $4 million in 2006.

NOTE 17 FINANCIAL DERIVATIVES Free-Standing Derivatives We use a variety of derivative financial instruments to help To accommodate customer needs, we also enter into financial manage interest rate, market and credit risk and reduce the derivative transactions primarily consisting of interest rate effects that changes in interest rates may have on net income, swaps, interest rate caps and floors, futures, swaptions, and fair value of assets and liabilities, and cash flows. These foreign exchange and equity contracts. We primarily manage instruments include interest rate swaps, interest rate caps and our market risk exposure from customer positions through floors, futures contracts, and total return swaps. transactions with third-party dealers. The credit risk associated with derivatives executed with customers is essentially the Fair Value Hedging Strategies same as that involved in extending loans and is subject to We enter into interest rate swaps, caps, floors and futures normal credit policies. We may obtain collateral based on our derivative contracts to hedge bank notes, Federal Home Loan assessment of the customer. For derivatives not designated as Bank borrowings, senior debt and subordinated debt for an accounting hedge, the gain or loss is recognized in changes in fair value primarily due to changes in interest rates. noninterest income.

Adjustments related to the ineffective portion of fair value Also included in free-standing derivatives are transactions that hedging instruments are recorded in interest expense or we enter into for risk management and proprietary purposes noninterest income depending on the hedged item. that are not designated as accounting hedges, primarily interest rate, basis and total rate of return swaps, interest rate

133 caps, floors and futures contracts, credit default swaps, option Derivatives Used to Hedge MSRs and foreign exchange contracts and certain interest rate-locked The derivative portfolio also includes derivative financial loan origination commitments as well as commitments to buy instruments not included in SFAS 133 hedging strategies. The or sell mortgage loans. majority of these derivatives are used to manage interest rate and prepayment risk related to residential mortgage servicing Basis swaps are agreements involving the exchange of rights (MSRs), residential and commercial real estate loans payments, based on notional amounts, of two floating rate held for sale, and interest rate lock commitments, all of which financial instruments denominated in the same currency, one are carried at fair value consistent with the accounting for the tied to one reference rate and the other tied to a second derivatives. reference rate (e.g., swapping payments tied to one-month LIBOR for payments tied to three-month LIBOR). We use Derivative Counterparty Credit Risk these contracts to mitigate the impact on earnings of exposure By purchasing and writing derivative contracts we are exposed to a certain referenced interest rate. to credit risk if the counterparties fail to perform. We seek to minimize credit risk through credit approvals, limits, We purchase credit default swaps (“CDS”) to mitigate the risk monitoring procedures and collateral requirements. We of economic loss on a portion of our loan exposure. We also generally enter into transactions with counterparties that carry sell loss protection to mitigate the net premium cost and the high quality credit ratings. Nonperformance risk including impact of mark-to-market accounting on the CDS in cases credit risk is included in the determination of the estimated net where we buy protection to hedge the loan portfolio and to fair value. take proprietary trading positions. The fair values of these derivatives typically are based on the change in value, due to We enter into risk participation agreements to share some of changing credit spreads. the credit exposure with other counterparties related to interest rate derivative contracts or to take on credit exposure to Interest rate lock commitments for, as well as commitments to generate revenue. We will make/receive payments under these buy or sell, mortgage loans that we intend to sell are guarantees if a customer defaults on its obligation to perform considered free-standing derivatives. Our interest rate under certain credit agreements. Risk participation agreements exposure on certain commercial and residential mortgage entered into prior to July 1, 2003 were considered financial interest rate lock commitments as well as commercial and guarantees and therefore are not included in derivatives. residential mortgage loans held for sale is economically Agreements entered into subsequent to June 30, 2003 are hedged with total rate of return swaps, pay-fixed interest rate included in the derivatives table that follows. We determine swaps, credit derivatives and forward sales agreements. These that we meet our objective of reducing credit risk associated contracts mitigate the impact on earnings of exposure to a with certain counterparties to derivative contracts when the certain referenced rate. The fair value of loan commitments is participation agreements share in their proportional credit based on the estimated fair value of the underlying loan and losses of those counterparties. the probability that the loan will fund within the terms of the commitment. The fair value of the loan commitment also We generally have established agreements with our major takes into account the fair value of the embedded servicing derivative dealer counterparties that provide for exchanges of right pursuant to SAB 109. marketable securities or cash to collateralize either party’s positions. At December 31, 2008, we held cash, which is Free-standing derivatives also include positions we take based included in other borrowed funds on our Consolidated Balance on market expectations or to benefit from price differentials Sheet, US government securities and mortgage-backed between financial instruments and the market based on stated securities with a total fair value of $1.4 billion. We pledged risk management objectives. cash, which is included in short-term investments on our Consolidated Balance Sheet, and US government securities of $1.2 billion under these agreements.

134 The total notional or contractual amounts, estimated net fair value and credit risk for derivatives were as follows:

December 31, 2008 December 31, 2007 Notional/ Estimated Notional/ Estimated Contractual net fair Credit Contractual net fair Credit In millions amount value risk (b) amount value risk (b) ACCOUNTING HEDGES Fair value hedges $ 9,888 $ 888 $ 889 $ 10,568 $ 190 $ 283 Cash flow hedges 5,618 527 527 7,856 325 325 Total $ 15,506 $1,415 $ 1,416 $ 18,424 $ 515 $ 608 FREE-STANDING DERIVATIVES Interest rate contracts $146,137 $ 503 $4,828 $170,889 $ 4 $1,224 Equity contracts 984 (4) 72 1,824 (69) 144 Foreign exchange contracts 8,972 (3) 320 15,741 13 153 Credit derivatives 2,937 205 287 5,823 42 96 Options 3,334 177 315 64,448 87 496 Risk participation agreements 3,290 3 1,183 Residential mortgage servicing rights 52,980 109 1,136 Commitments related to mortgage-related assets 18,853 (12) 69 3,190 10 15 Other (a) 773 56 58 642 (201) Total $ 238,260 $1,031 $ 7,088 $ 263,740 $ (114) $ 2,128 (a) Relates to PNC’s obligation to help fund certain BlackRock LTIP programs and to certain customer-related derivatives. (b) Credit risk amounts reflect the replacement cost for contracts in a gain position in the event of nonperformance by all counterparties.

NOTE 18 EARNINGS PER SHARE The following table sets forth basic and diluted earnings per common share calculations:

Year ended December 31 - in millions, except share and per share data 2008 2007 2006 CALCULATION OF BASIC EARNINGS PER COMMON SHARE Net income $ 882 $ 1,467 $ 2,595 Less: Preferred dividends declared 21 1 Net income applicable to basic earnings per common share $ 861 $ 1,467 $ 2,594 Basic weighted-average common shares outstanding (in thousands) 343,980 331,300 291,758 Basic earnings per common share $ 2.50 $ 4.43 $ 8.89 CALCULATION OF DILUTED EARNINGS PER COMMON SHARE (a) (b) Net income $ 882 $ 1,467 $ 2,595 Less: BlackRock adjustment for common stock equivalents 7 86 Non-convertible preferred dividends declared 21 Net income applicable to diluted earnings per common share $ 854 $ 1,459 $ 2,589 Basic weighted-average common shares outstanding (in thousands) 343,980 331,300 291,758 Weighted-average common shares to be issued using average market price and assuming: Conversion of preferred stock Series A and B 63 65 70 Conversion of preferred stock Series C and D 501 542 584 Conversion of debentures 9 22 Exercise of stock options 988 1,774 2,178 Incentive/performance unit share and restricted stock/unit awards 1,525 1,474 1,930 Diluted weighted-average common shares outstanding (in thousands) 347,066 335,157 296,522 Diluted earnings per common share $ 2.46 $ 4.35 $ 8.73 (a) Excludes stock options considered to be anti-dilutive (in thousands) 8,815 4,135 4,230 (b) Excludes warrants considered to be anti-dilutive (in thousands) 19,410

135 NOTE 19 SHAREHOLDERS’EQUITY Series L is redeemable at PNC’s option, subject to a Preferred Stock replacement capital covenant for the first ten years after Information related to preferred stock is as follows: issuance and subject to Federal Reserve approval, if then applicable, on or after February 1, 2013 at a redemption price Preferred Shares per share equal to the liquidation preference plus any declared Liquidation December 31 value per but unpaid dividends. Shares in thousands share 2008 2007 Authorized Also as part of the National City transaction, we established $1 par value 16,960 16,985 the PNC Non-Cumulative Perpetual Preferred Stock, Series Issued and outstanding M, which mirrors in all material respects the former National Series A $ 40 6 7 City Non-Cumulative Perpetual Preferred Stock, Series E. Series B 40 1 1 PNC has designated 5,751preferred shares, liquidation value Series C 20 119 128 $100,000 per share, for this series. No shares have yet been Series D 20 171 186 issued; however, National City issued stock purchase Series K 10,000 50 Series L 100,000 2 contracts for 5,001 shares of its Series E Preferred Stock (now Series N 100,000 76 replaced by the PNC Series M as part of the National City transaction) to the National City Preferred Capital Trust I in Total issued and outstanding 425 322 connection with the issuance by that Trust of $500 million of 12.000% Fixed-to-Floating Rate Normal Automatic Preferred On December 31, 2008, we issued $7.6 billion of Fixed Rate Enhanced Capital Securities (the “Normal APEX Securities”) Cumulative Perpetual Preferred Stock, Series N, to the US in January 2008 by the Trust. It is expected that the Trust will Treasury under the US Treasury’s Troubled Asset Relief purchase 5,001 of the Series M preferred shares pursuant to Program (“TARP”) Capital Purchase Program, together with a these stock purchase contracts on December 10, 2012 or on an warrant to purchase shares of common stock of PNC earlier date and possibly as late as December 10, 2013. The described below. Series N dividends are payable on the 15th of Trust has pledged the $500,100,000 principal amount of February, May, August and November beginning February 15, National City 8.729% Junior Subordinated Notes due 2043 2009. Dividends will be paid at a rate of 5.00% through held by the Trust and their proceeds to secure this purchase February 15, 2014 and 9.00% thereafter. This preferred stock obligation. is redeemable at par plus accrued and unpaid dividends subject to the approval of our primary banking regulators. If Series M shares are issued prior to December 10, 2012, any Under the TARP Capital Purchase Program, there are dividends on such shares will be calculated at a rate per restrictions on common and preferred dividends and common annum equal to 12.000% until December 10, 2012, and share repurchases associated with the preferred stock issued to thereafter, at a rate per annum that will be reset quarterly and the US Treasury. As is typical with cumulative preferred will equal three-month LIBOR for the related dividend period stock, dividend payments for this preferred stock must be plus 8.610%. Dividends will be payable if and when declared current before dividends can be paid on junior shares, by the Board at the dividend rate so indicated applied to the including our common stock, or junior shares can be liquidation preference per share of the Series M Preferred repurchased or redeemed. Also, the US Treasury’s consent is Stock. The Series M is redeemable at PNC’s option, subject to required for any increase in common dividends per share a replacement capital covenant for the first ten years after above the most recent level prior to October 14, 2008 until the issuance and subject to Federal Reserve approval, if then third anniversary of the preferred stock issuance as long as the applicable, on or after December 10, 2012 at a redemption US Treasury continues to hold any of the preferred stock. price per share equal to the liquidation preference plus any Further, during that same period, the US Treasury’s consent is declared but unpaid dividends. required, unless the preferred stock is no longer held by the US Treasury, for any share repurchases with limited As a result of the National City transaction, we assumed exceptions, most significantly purchases of common shares in National City’s obligations under replacement capital connection with any benefit plan in the ordinary course of covenants with respect to (i) the Normal APEX Securities and business consistent with past practice. our Series M shares and (ii) National City’s 6,000,000 of Depositary Shares (each representing 1/4000th of an interest As part of the National City transaction, we issued 9.875% in a share of our 9.875% Fixed-to-Floating Rate Fixed-to-Floating Rate Non-Cumulative Preferred Stock, Non-Cumulative Preferred Stock, Series L), whereby we Series L in exchange for National City’s Fixed-to-Floating agreed not to cause the redemption or repurchase of the Rate Non-Cumulative Preferred Stock, Series F. Dividends are Normal APEX or Depositary Shares, as applicable, or the payable if and when declared each 1st of February, May, underlying Preferred Stock and/or junior subordinated notes, August and November. Dividends will be paid at a rate of as applicable, unless such repurchases or redemptions are 9.875% prior to February 1, 2013 and at a rate of three-month made from the proceeds of the issuance of certain qualified LIBOR plus 633 basis points beginning February 1, 2013. The securities and pursuant to the other terms and conditions set

136 forth in the replacement capital covenant with respect to the the $7.6 billion preferred stock issue price from one or more Normal APEX (the “APEX RCC”) or the replacement capital qualified equity offerings. The warrant expires on covenant with respect to the Depositary Shares (the December 31, 2018. “Depositary Shares RCC”), as applicable. The TARP warrant was valued at $304 million at As of December 31, 2008, each of the APEX RCC and the December 31, 2008 and is included in Capital surplus- Depositary Shares RCC are for the benefit of holders of our common stock and other on our Consolidated Balance Sheet. $700 million of 6.875% Subordinated Notes Due 2019. National City Warrants In May 2008, we issued $500 million of Depositary Shares, As part of the National City transaction, warrants issued by each representing a fractional interest in a share of PNC National City converted into warrants to purchase PNC Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, common stock. The holder has the option to exercise 28,022 Series K. Dividends are payable if and when declared warrants, on a daily basis, commencing June 15, 2011 and beginning November 21, 2008 and then each May 21 and ending on July 15, 2011, and 28,023 warrants, on a daily November 21 until May 21, 2013. After that date, dividends basis, commencing July 18, 2011 and ending on October 20, will be payable each 21st of August, November, February and 2011. The strike price of these warrants is $750 per share. May. Dividends will be paid at a rate of 8.25% prior to Upon exercise, PNC will deliver common shares with a May 21, 2013 and at a rate of three-month LIBOR plus 422 market value equal to the number of warrants exercised basis points beginning May 21, 2013. multiplied by the excess of the market price of PNC common stock over the strike price. The maximum number of shares Series A through D are cumulative and, except for Series B, that could be required to be issued is approximately are redeemable at our option. Annual dividends on Series A, B 5.0 million, subject to adjustment in the case of certain events, and D preferred stock total $1.80 per share and on Series C make-whole fundamental changes or early termination. PNC preferred stock total $1.60 per share. Holders of Series A has reserved 5.0 million shares for issuance pursuant to the through D preferred stock are entitled to a number of votes warrants and 3.6 million shares for issuance pursuant to the equal to the number of full shares of common stock into which related convertible senior notes. such preferred stock is convertible. Series A through D preferred stock have the following conversion privileges: Other Shareholders’ Equity Matters (i) one share of Series A or Series B is convertible into eight We have a dividend reinvestment and stock purchase plan. shares of PNC common stock; and (ii) 2.4 shares of Series C Holders of preferred stock and PNC common stock may or Series D are convertible into four shares of PNC common participate in the plan, which provides that additional shares stock. of common stock may be purchased at market value with reinvested dividends and voluntary cash payments. Common TARP Warrant shares issued pursuant to this plan were: 716,819 shares in A warrant issued to the US Treasury in connection with the 2008, 571,271 shares in 2007 and 535,394 shares in 2006. preferred stock described above enables the US Treasury to purchase up to approximately 16.9 million shares of PNC At December 31, 2008, we had reserved approximately common stock at an exercise price of $67.33 per share. 94.7 million common shares to be issued in connection with However, if PNC receives aggregate gross proceeds of at least certain stock plans and the conversion of certain debt and $7.6 billion from one or more qualified equity offerings on or equity securities. before December 31, 2009, the number of shares of PNC common stock underlying the warrant then held by the US Effective October 4, 2007, our Board of Directors terminated Treasury will be reduced by 50% of the number of shares the 2005 stock repurchase program and approved a new stock originally underlying the warrant. repurchase program to purchase up to 25 million shares of PNC common stock on the open market or in privately The warrant is immediately exercisable in full or in part, negotiated transactions. The 2007 program will remain in provided that the US Treasury may not transfer or exercise a effect until fully utilized or until modified, superseded or portion of the warrant representing in the aggregate more than terminated. We did not repurchase any shares during 2008 50% of the shares underlying the warrant prior to the earlier of under the 2007 program. During 2007, we purchased (i) December 31, 2009 and (ii) the date on which PNC has 11 million common shares at a total cost of approximately received aggregate gross proceeds of not less than 100% of $800 million under the 2005 and 2007 programs.

137 NOTE 20 OTHER COMPREHENSIVE INCOME Pretax Tax After-tax Details of other comprehensive income (loss) are as follows Pension, other postretirement and (in millions): postemployment benefit plan adjustments Pretax Tax After-tax Balance at January 1, 2006 $ (15) Net unrealized securities gains (losses) 2006 Activity Balance at January 1, 2006 $ (240) SFAS 87 adjustment $ (2) $ 1 (1) 2006 activity SFAS 158 adjustment, net (203) 71 (132) Increase in net unrealized gain for Total 2006 activity (205) 72 (133) securities held at year-end $ 129 $ (46) 83 Balance at December 31, 2006 (148) Less: net losses realized in net 2007 Activity (49) 20 (29) income (a) (101) 35 (66) Balance at December 31, 2007 (177) Net unrealized securities gains 230 (81) 149 2008 Activity (775) 285 (490) Balance at December 31, 2006 (91) Balance at December 31, 2008 $(667) 2007 activity Increase in net unrealized losses for Other (b) securities held at year-end (134) 52 (82) Balance at January 1, 2006 $ 14 Less: net losses realized in net 2006 Activity $ 6 $ (3) 3 income (a) (9) 3 (6) Balance at December 31, 2006 17 Net unrealized securities losses (125) 49 (76) 2007 Activity 24 (19) 5 Balance at December 31, 2007 (167) Balance at December 31, 2007 22 2008 activity 2008 Activity Increase in net unrealized losses for Foreign currency translation adj. (129) 46 (83) securities held at year-end (5,423) 1,992 (3,431) BlackRock deferred tax adj. 31 31 Less: net gains realized in net Total 2008 activity (129) 77 (52) 44 (16) 28 income (a) Balance at December 31, 2008 $ (30) Net unrealized securities losses (5,467) 2,008 (3,459) (b) Consists of foreign currency translation adjustments, deferred tax adjustments on Balance at December 31, 2008 $(3,626) BlackRock’s other comprehensive income (2008 and 2007), and interest-only strip valuation adjustments (2007 and 2006). (a) Pretax amounts represent net unrealized gains (losses) as of the prior year-end date that were realized in the subsequent year when the related securities were sold. These amounts differ from net securities losses included in the Consolidated Income The accumulated balances related to each component of other Statement primarily because they do not include gains or losses realized on comprehensive income (loss) are as follows: securities that were purchased and then sold during the same year. December 31 – in millions 2008 2007 Pretax Tax After-tax Net unrealized gains (losses) on cash Net unrealized securities gains (losses) $(3,626) $(167) flow hedge derivatives Net unrealized gains on cash flow hedge Balance at January 1, 2006 $ (26) derivatives 374 175 2006 activity Pension, other postretirement and post Increase in net unrealized gains on cash employment benefit plan adjustments (667) (177) flow hedge derivatives $ 13 $ (5) 8 Other (30) 22 Less: net gains realized in net income (7) 2 (5) Accumulated other comprehensive (loss) $(3,949) $(147) Net unrealized gains on cash flow hedge derivatives 20 (7) 13 Balance at December 31, 2006 (13) NOTE 21 INCOME TAXES 2007 activity The components of income taxes are as follows: Increase in net unrealized gains on cash Year ended December 31 flow hedge derivatives 283 (104) 179 In millions 2008 2007 2006 Less: net gains realized in net income (14) 5 (9) Current Net unrealized gains on cash Federal $ 553 $491 $ 565 flow hedge derivatives 297 (109) 188 State 69 58 46 Balance at December 31, 2007 175 Total current 622 549 611 2008 activity Deferred Increase in net unrealized gains on cash Federal (235) 61 752 flow hedge derivatives 344 (127) 217 State (26) 17 Less: net gains realized in net income 29 (11) 18 Total deferred (261) 78 752 Net unrealized gains on cash Total $ 361 $627 $1,363 flow hedge derivatives 315 (116) 199 Balance at December 31, 2008 $374

138 Significant components of deferred tax assets and liabilities subsidiaries for which no income tax has been provided. are as follows: Under current law, if certain subsidiaries use these bad debt reserves for purposes other than to absorb bad debt losses, December 31 - in millions 2008 2007 they will be subject to Federal income tax at the current Deferred tax assets corporate tax rate. Allowance for loan and lease losses $1,564 $ 370 Net unrealized securities losses 2,121 90 As of December 31, 2008 and 2007, we had a liability for Compensation and benefits 813 322 uncertain tax positions, excluding interest and penalties of Unrealized losses on loans 1,825 Other 1,918 370 $257 million and $57 million, respectively. A reconciliation of the beginning and ending balance of unrecognized tax benefits Total deferred tax assets 8,241 1,152 is as follows: Deferred tax liabilities Leasing 1,292 1,011 Changes in Unrecognized Tax Benefits Goodwill and Intangibles 636 255 (in millions): 2008 2007 Mortgage servicing rights 332 Balance of gross unrecognized tax benefits BlackRock basis difference 1,265 1,234 at January 1 $57 $49 Other 968 184 Increases: Total deferred tax liabilities 4,493 2,684 Positions taken during a prior period 203(a) 52(b) Positions taken during the current period 1 Net deferred asset (liability) $3,748 $(1,532) Decreases: Positions taken during a prior period (3) (2) A reconciliation between the statutory and effective tax rates Settlements with taxing authorities (39) follows: Reductions resulting from lapse of statute of limitations (4) Year ended December 31 2008 2007 2006 Balance of gross unrecognized tax benefits at Statutory tax rate 35.0% 35.0% 35.0% December 31 $257 $ 57 Increases (decreases) resulting from (a) Includes $202 million acquired from National City. State taxes 2.4 2.3 .8 (b) Includes $42 million acquired from Mercantile. Tax-exempt interest (1.7) (.8) (.3) Life insurance (2.3) (1.7) (.6) December 31, 2008 - in millions Dividend received deduction (3.1) (1.6) (.2) Unrecognized tax benefits related to: Tax credits (4.2) (2.9) (.9) Acquired companies within measurement period: Tax gain on sale of Hilliard Lyons 4.1 Temporary differences $39 Other (1.1) (.4) .2 Permanent differences 163 Other: Effective tax rate 29.1% 29.9% 34.0% Temporary differences 12 Permanent differences 43 At December 31, 2008 we had available $124 million of federal and $1.7 billion of state income tax net operating loss Total $257 carryforward originating from acquired companies and $33 million in other state net operating loss carryforwards. A $23 Under SFAS 141(R) which became effective January 1, 2009, million valuation allowance is recorded against the deferred any changes after the measurement period (a maximum of tax asset associated with the $1.7 billion of state income tax twelve months from date of acquisition) to unrecognized tax net operating losses. The net operating loss carryforwards will benefits of acquired companies associated with permanent expire from 2009 through 2028. differences would result in an adjustment to income tax expense. If all the unrecognized tax benefits were recognized At December 31, 2008 we had available $119 million of after the measurement period, $133 million would affect the federal and $4 million of state tax credit carryforwards effective tax rate. Certain changes within the measurement originating from acquired companies. The tax credit period would result in a purchase accounting adjustment carryforwards will expire from 2026 through 2028. associated with the particular acquisition.

No deferred US income taxes have been provided on certain Any changes in the amounts of unrecognized tax benefits undistributed earnings of non-US subsidiaries, which related to temporary differences would result in a amounted to $59 million at December 31, 2008. As of reclassification to deferred tax liability; any changes in the December 31, 2008, these earnings are considered to be amounts of unrecognized tax benefits related to other reinvested for an indefinite period of time. It is not practicable permanent differences (per above table) would result in an to determine the deferred tax liability on these earnings. adjustment to income tax expense and therefore our effective tax rate. The unrecognized tax benefits related to other Retained earnings at December 31, 2008 included $117 permanent items above that if recognized would affect the million in allocations for bad debt deductions of former thrift effective tax rate is $30 million. This is less than the total

139 amount of unrecognized tax benefit related to permanent which related to our cross-border leasing transactions. The differences because a portion of those unrecognized benefits total accrued interest and penalties at December 31, 2008 was relate to state tax matters. $164 million. While the leasing related interest decreased with a payment to the IRS, the $73 million net increase primarily It is reasonably possible that the liability for uncertain tax resulted from our acquisition of National City. positions could increase or decrease in the next twelve months due to completion of tax authorities’ exams or the expiration NOTE 22 SUMMARIZED FINANCIAL of statutes of limitations. Management estimates that the INFORMATION OF BLACKROCK liability for uncertain tax positions could decrease by $5 As required by SEC Regulation S-X, summarized million within the next twelve months. consolidated financial information of BlackRock follows (in millions). The consolidated federal income tax returns of The PNC Financial Services Group, Inc. and subsidiaries through 2003 December 31 2008 2007 have been audited by the Internal Revenue Service and we Total assets $19,924 $22,561 have resolved all disputed matters through the IRS appeals Total liabilities $ 7,367 $10,387 division. The Internal Revenue Service is currently examining Non-controlling interest 491 578 the 2004 through 2006 consolidated federal income tax returns Stockholders’ equity 12,066 11,596 of The PNC Financial Services Group, Inc. and subsidiaries. Total liabilities, non-controlling interest and stockholders’ equity $19,924 $22,561 The consolidated federal income tax returns of National City Corporation and subsidiaries through 2004 have been audited Year ended December 31 2008 2007 by the Internal Revenue Service and we have reached Total revenue $ 5,064 $ 4,845 agreement in principle on resolution of all disputed matters Total expenses 3,471 3,551 through the IRS appeals division. However, because the Operating income 1,593 1,294 agreement is still subject to execution of a closing agreement Non-operating income (expense) (574) 529 we have not treated it as effectively settled. The Internal Income before income taxes and Revenue Service is currently examining the 2005 through non-controlling interest 1,019 1,823 2007 consolidated federal income tax returns of National City Income taxes 388 464 Corporation and subsidiaries, and we expect the 2008 federal Non-controlling interest (155) 364 income tax return to begin being audited as soon as it is filed. Net income $ 786 $ 995 New York, New Jersey, Maryland and New York City are principally where we were subject to state and local income NOTE 23 REGULATORY MATTERS tax prior to our acquisition of National City. The state of New We are subject to the regulations of certain federal and state York is currently in the process of closing the 2002 to 2004 agencies and undergo periodic examinations by such audit and will begin auditing the years 2005 and 2006. New regulatory authorities. York City is currently auditing 2004 and 2005. However, years 2002 and 2003 remain subject to examination by New The access to and cost of funding new business initiatives York City pending completion of the New York state audit. including acquisitions, the ability to pay dividends, the level Through 2006, BlackRock is included in our New York and of deposit insurance costs, and the level and nature of New York City combined tax filings and constituted most of regulatory oversight depend, in large part, on a financial the tax liability. Years subsequent to 2004 remain subject to institution’s capital strength. The minimum US regulatory examination by New Jersey and years subsequent to 2005 capital ratios are 4% for tier 1 risk-based, 8% for total risk- remain subject to examination by Maryland. based and 4% for leverage. However, regulators may require higher capital levels when particular circumstances warrant. National City was principally subject to state and local income To qualify as “well capitalized,” regulators require banks to tax in California, Florida, Illinois, Indiana, and Missouri. maintain capital ratios of at least 6% for tier 1 risk-based, 10% Audits currently in process for these states include: California for total risk-based and 5% for leverage. At December 31, (2003-2004), Illinois (2004-2006) and Missouri (2003-2005). 2008 and December 31, 2007, each of our domestic bank We will now also be principally subject to tax in those states. subsidiaries met the “well capitalized” capital ratio In the ordinary course of business we are routinely subject to requirements. audit by the taxing authorities of these states and at any given time a number of audits will be in process.

Our policy is to classify interest and penalties associated with income taxes as income taxes. At January 1, 2008, we had accrued $91 million of interest related to tax positions, most of

140 The following table sets forth regulatory capital ratios for NOTE 24 LEGAL PROCEEDINGS PNC and its significant bank subsidiaries, PNC Bank, N.A. National City Matters and National City Bank. In December 2008, we completed the acquisition of National City through the merger of National City into The PNC Regulatory Capital Financial Services Group, Inc. As a result, we are now responsible for litigation pending against National City and its Amount Ratios December 31 Dollars in millions 2008 2007 2008 2007 subsidiaries at that time. We will also be responsible for future litigation arising out of the conduct of the business of National Risk-based capital City and its subsidiaries before the acquisition. Tier 1 PNC $24,287 $ 7,815 9.7% 6.8% PNC Bank, N.A. 8,338 7,851 7.1 7.6 The lawsuits and other matters described below arise from National City Bank (a) 12,567 10.1 National City’s business prior to the merger. We may be Total responsible for indemnifying individual defendants in these PNC 33,116 11,803 13.2 10.3 lawsuits and other matters. PNC Bank, N.A. 12,104 10,616 10.3 10.2 National City Bank (a) 17,208 13.8 See also “National City Acquisition-Related Litigation” below Leverage for information regarding litigation filed against PNC and PNC NM NM 17.5 6.2 National City relating to the merger and “Regulatory and PNC Bank, N.A. NM NM 6.3 6.8 Governmental Inquiries” for information regarding regulatory National City Bank (a) NM 8.8 matters with respect to National City. (a) Acquired on December 31, 2008. NM—Not meaningful. Visa. Beginning in June 2005, a series of antitrust lawsuits ® ® The principal source of parent company cash flow is the were filed against Visa , MasterCard , and several major dividends it receives from its subsidiary banks, which may be financial institutions, including cases naming National City impacted by the following: (since merged into PNC) and its subsidiary, National City • Capital needs, Bank of Kentucky, since merged into National City Bank. The • Laws and regulations, cases, which were brought as class actions on behalf of all ® • Corporate policies, persons or business entities who have accepted Visa or ® • Contractual restrictions, and MasterCard , have been consolidated for pretrial proceedings • Other factors. in the United States District Court for the Eastern District of New York. The plaintiffs, merchants operating commercial Also, there are statutory and regulatory limitations on the businesses throughout the U.S. and trade associations, allege ability of national banks to pay dividends or make other that the defendants conspired to fix the prices for general capital distributions. The amount available for dividend purpose card network services, resulting in the payment of payments to the parent company by PNC Bank, N.A. without inflated interchange fees, in violation of the antitrust laws. In prior regulatory approval was approximately $351 million at January 2009, the plaintiffs filed amended and supplemental December 31, 2008. National City Bank had no statutory complaints adding, among other things, allegations that the dividend capacity as of December 31, 2008. restructuring of Visa and MasterCard, each of which included an initial public offering, violated the antitrust laws. The Under federal law, bank subsidiaries generally may not extend plaintiffs seek injunctive relief, actual and treble damages and credit to the parent company or its non-bank subsidiaries on attorneys’ fees. National City and National City Bank entered terms and under circumstances that are not substantially the into judgment and loss sharing agreements with Visa and same as comparable extensions of credit to nonaffiliates. No other financial institutions with respect to this litigation. On extension of credit may be made to the parent company or a January 8, 2008, the district court dismissed plaintiffs’ claims non-bank subsidiary which is in excess of 10% of the capital for damages incurred prior to January 1, 2004. This litigation stock and surplus of such bank subsidiary or in excess of 20% is also subject to the indemnification obligations described in of the capital and surplus of such bank subsidiary as to Note 25 Commitments and Guarantees. PNC Bank, N.A. is aggregate extensions of credit to the parent company and its not named a defendant in any of this litigation nor is it a party non-bank subsidiaries. Such extensions of credit, with limited to the judgment or loss sharing agreements but is subject to exceptions, must be fully collateralized by certain specified these indemnification obligations. assets. In certain circumstances, federal regulatory authorities may impose more restrictive limitations. Merrill Lynch. In December 2006, National City Bank completed the sale of its First Franklin nonprime mortgage Federal Reserve Board regulations require depository origination and servicing platform to Merrill Lynch Bank & institutions to maintain cash reserves with the Federal Reserve Trust Co., FSB. By letters dated April 10, 2008 and June 16, Bank (“FRB”). At December 31, 2008, the balance 2008, Merrill Lynch notified National City Bank of its outstanding at the FRB was $14 billion. indemnification claim pursuant to the purchase agreement.

141 Merrill Lynch alleges that National City Bank breached relating to, among other things, National City stock being certain representations or warranties contained in the purchase offered as an investment alternative, an alleged lock-up of agreement related to Merrill Lynch’s alleged repurchases of National City stock, failure to pay benefits, conflicts of mortgage loans originated by First Franklin prior to its sale to interest, and monitoring and disclosure obligations. The Merrill Lynch as well as mortgage loans as to which it faces complaint seeks equitable relief (including a declaration that repurchase demands. Merrill Lynch also asserts that National the defendants breached their ERISA fiduciary duties, an City Bank is responsible for indemnifying it for certain settled injunction prohibiting further breaches, an order compelling or pending lawsuits against First Franklin. the defendants to make good any losses to the Plan caused by their actions, the imposition of a constructive trust on any ERISA Cases. Commencing in January 2008, a series of profits earned by the defendants from their actions and substantially similar lawsuits were brought against National restitution), unspecified money damages and attorneys’ fees City, the Administrative Committee of the National City and costs. Savings and Investment Plan (the “Plan”), National City Bank (as trustee), and some of National City’s officers and Derivative Cases. Commencing in January 2008, a series of directors. These cases have been consolidated in the United shareholder derivative complaints were filed in the United States District Court for the Northern District of Ohio, and the States District Court for the Northern District of Ohio, the plaintiffs have filed a consolidated amended complaint. The Chancery Court for the State of Delaware and the Cuyahoga consolidated action is brought as a class action on behalf of all County, Ohio, Court of Common Pleas against certain officers participants in or beneficiaries of the Plan at any time between and directors of National City. Subsequently, the complaints September 5, 2006 and the present and whose Plan accounts filed in Delaware were voluntarily dismissed and the included investments in National City common stock, as well complaints filed in Ohio state court were consolidated and as all participants in or beneficiaries of the Plan and whose stayed pending resolution of the federal court cases. A accounts were invested in Allegiant Funds from March 25, consolidated complaint has been filed in the federal court, and 2002 to the present. The consolidated complaint alleges there is a pending motion to dismiss that case. These suits breaches of fiduciary duty under the Employee Retirement make substantially similar allegations against certain officers Income Security Act of 1974 (“ERISA”) relating to, among and directors of National City for, among other things, other things, National City stock being offered as an breaches of fiduciary duty, waste of corporate assets, unjust investment alternative in the Plan, conflicts of interest, and enrichment and (in the federal court case) violations of the monitoring and disclosure obligations. The consolidated Securities Exchange Act of 1934, based on claims, among complaint also alleges that the Administrative Committee others, that National City issued inaccurate information to defendants breached their fiduciary duties under ERISA, investors about the status of its business and prospects, and engaged in prohibited transactions by authorizing or causing that the defendants caused National City to repurchase shares the Plan to invest in Allegiant Funds, and violated ERISA of its stock at artificially inflated prices. The complaints seek duties of loyalty by virtue of National City’s receipt of unspecified money damages and equitable relief (including financial benefits in the forms of fees paid to Allegiant for restitution and certain corporate governance changes) against managing the mutual funds. The complaint seeks equitable the individual defendants on behalf of National City, as well relief (including a declaration that defendants breached their as attorneys’ fees and costs. ERISA fiduciary duties, an order compelling the defendants to make good any losses to the Plan caused by their actions, the Securities and State Law Fiduciary Cases. Several lawsuits imposition of a constructive trust on any profits earned by the have been filed against National City and its officers and defendants from their actions and restitution), unspecified directors alleging misrepresentations and omissions in money damages and attorneys’ fees and costs. A motion to violation of the federal securities laws in connection with dismiss the amended consolidated complaint is pending. statements and disclosures relating in one or more cases to, among other things, the nature, quality, performance and risks In February 2009, a lawsuit was filed in the United States of National City’s non-prime, construction and home equity District Court for the Northern District of Ohio against portfolios, its loan loss reserves, its financial condition, and National City, National City Bank, the Administrative related allegedly false and misleading financial statements. Committee of the National City Savings and Investment Plan, Some of the lawsuits allege state common law violations. In Harbor Federal Savings Bank, the Harbor Employees Stock some cases, the lawsuits were brought in an individual Ownership Plan Committee and certain National City and capacity, with the others brought as class actions. The relief Harbor directors and officers. This lawsuit was brought as a sought generally includes unspecified damages, attorneys’ class action on behalf of all participants in or beneficiaries of fees and expenses, and, where indicated below, equitable the Harbor ESOP between December 1, 2006 and the present relief. The following is a summary of the significant lawsuits whose account in the Harbor ESOP held National City stock in this category: (including National City units), and who continued to be • In January 2008, a lawsuit was filed in the United employed by National City through December 31, 2007. The States District Court for the Northern District of Ohio complaint alleges breaches of fiduciary duties under ERISA against National City and certain officers and

142 directors of National City. As amended, this lawsuit and then transferred to the United States District is being brought as a class action on behalf of Court for the Northern District of Ohio. A motion to purchasers of National City’s stock during the period remand to state court is pending. April 30, 2007 to April 21, 2008 and also on behalf • In October 2008, a lawsuit was filed in the United of everyone who acquired National City stock States District Court for the Western District of pursuant to a registration statement filed in Pennsylvania against National City. In December connection with its acquisition of MAF Bancorp in 2008, the complaint was amended to add as 2007. The complaint alleges violations of federal defendants Corsair Capital, LLC, Corsair NC securities laws regarding public statements and Co-Invest, L.P. and unnamed other investors disclosures. A motion to dismiss the complaint is participating in the April 2008 capital infusion into pending. National City. As amended, the lawsuit is brought as • In April 2008, a lawsuit was filed in the Cuyahoga a class action on behalf of all shareholders of County, Ohio, Court of Common Pleas against National City who owned shares as of October 24, National City, certain officers and directors of 2008. The amended complaint alleges breaches of National City, and its auditor, Ernst & Young, LLP. fiduciary duties in connection with the capital The complaint was brought as a class action on infusion and misstatements and omissions relating to behalf of all current and former National City the effect of the capital infusion, National City’s employees who acquired stock pursuant to and/or ability to participate in the TARP Capital Purchase traceable to a December 1, 2006 registration Program, and National City’s capital position and statement filed in connection with the acquisition of financial stability in violation of the federal securities Harbor Federal Savings Bank and who were laws. This case was conditionally transferred to the participants in the Harbor Bank Employees Stock United States District Court for the Northern District Ownership Plan and the Harbor Bank Stock Incentive of Ohio. The plaintiffs have filed a motion to vacate Plan. The plaintiffs allege that the registration this transfer. statement contained false and misleading statements • In December 2008, a lawsuit was filed in the United and omissions in violation of the federal securities States District Court for the Northern District of Ohio laws. Defendants removed the case to the United against National City and some of its officers and States District Court for the Northern District of Ohio directors. The plaintiff, an arbitrage fund, seeks to and filed a motion to dismiss the complaint. The represent a class of all who purchased National City’s federal court has subsequently remanded the case 4.0% Convertible Senior Notes Due 2011 pursuant to back to the Ohio state court. and/or traceable to the registration statement and • In May 2008, a lawsuit was filed on behalf of an prospectus supplement issued in connection with the individual plaintiff in the Franklin County, Ohio, January 2008 offering of these notes and all who Court of Common Pleas against National City, purchased these notes in the open market between certain directors of National City, and Corsair January 23 and September 30, 2008. The complaint Co-Invest, L.P. and unnamed other investors alleges that the registration statement and prospectus participating in the April 2008 capital infusion into supplement contained false and misleading National City alleging that National City’s directors statements and omissions in violation of the federal breached their fiduciary duties by entering into this securities laws. capital infusion transaction. In addition to monetary damages and attorneys’ fees and costs, the complaint National City Acquisition-Related Litigation seeks a declaratory judgment that the Corsair National City is a defendant in numerous lawsuits filed in and transaction is void and/or voidable and injunctive after October 2008 as class actions on behalf of National City relief rescinding the Corsair transaction. A motion to stockholders. These lawsuits are pending in the Delaware dismiss the case is pending. Chancery Court (all of which were consolidated into a single • In August 2008, a lawsuit was filed in the Palm lawsuit), the United States District Court for the Northern Beach County, Florida, Circuit Court against District of Ohio and the Cuyahoga County, Ohio, Court of National City and certain officers and directors of Common Pleas. The consolidated Delaware case and most of National City. The lawsuit was brought as a class the Ohio cases include PNC as a defendant. All of these action on behalf of all who acquired National City lawsuits also name as defendants National City’s directors and stock pursuant to and/or traceable to the registration one of the Ohio federal lawsuits names National City officers statement filed in connection with National City’s as defendants. acquisition of Fidelity Bankshares, Inc. The complaint alleges that the registration statement The complaints in these cases allege that the National City contained false and misleading statements and directors breached their fiduciary duties to the stockholders of omissions in violation of the federal securities laws. National City in connection with the proposed transaction This lawsuit was removed to federal court in Florida with PNC. The lawsuits generally allege that National City

143 directors breached their fiduciary duties by, among other Adelphia things, causing National City to enter into the proposed Some of our subsidiaries are defendants (or have potential transaction at an allegedly inadequate and unfair price, contractual contribution obligations to other defendants) in engaging in self-dealing and acting with divided loyalties, and several pending lawsuits brought during late 2002 and 2003 failing to disclose material information to the stockholders. arising out of the bankruptcy of Adelphia Communications Some lawsuits allege violations of the federal securities laws. Corporation and its subsidiaries. In the cases naming PNC as a defendant, PNC is alleged to have aided and abetted the other defendants’ breaches of One of the lawsuits was brought on Adelphia’s behalf by the fiduciary duties. The various complaints seek, among other unsecured creditors’ committee and equity committee in remedies, an accounting, imposition of a constructive trust, Adelphia’s consolidated bankruptcy proceeding and was unspecified damages, rescission, costs of suit, and attorneys’ removed to the United States District Court for the Southern fees. District of New York by order dated February 9, 2006. Pursuant to Adelphia’s plan of reorganization, this lawsuit will In addition, the plaintiffs in one of the pending derivative be prosecuted by a contingent value vehicle, known as the lawsuits against the National City directors in the Cuyahoga Adelphia Recovery Trust. In October 2007, the Adelphia County Court of Common Pleas and in the pending derivative Recovery Trust filed an amended complaint in this lawsuit, lawsuit in federal court in Ohio, each referred to above, have adding defendants and making additional allegations. moved to amend their complaints to add merger-related claims, including claims that National City’s directors agreed In June 2008, the district court granted in part defendants’ to sell National City in order to extinguish their own personal motion to dismiss. The court dismissed the principal liability in derivative litigation pending against them. PNC is bankruptcy law claims that had not previously been dismissed not named as a defendant in either of these proposed amended by the Bankruptcy Court, including claims alleging voidable complaints. In December 2008, the Ohio state court denied the preference payments, fraudulent transfers, and equitable plaintiffs’ motion to lift the stay and to conduct expedited disallowance. The effect of this ruling is to dismiss from this discovery in support of the proposed amended complaint. lawsuit all claims against most of the defendants but leave pending against PNC and other original members of Adelphia In December 2008, the defendants entered into a loan syndicates and then-affiliated investment banks the other memorandum of understanding with the plaintiffs regarding claims. In December 2008, the court granted a motion made the settlement of the Delaware lawsuit, as well as one of the on behalf of a number of defendants to enter final judgment on cases pending in the Cuyahoga County, Ohio, Court of the dismissed claims to permit immediate appellate review of Common Pleas and the merger-related claims in the derivative the issues resolved by the district court in June 2008 and by case pending in the Ohio state court. In connection with the the bankruptcy court prior to the filing of the amended settlement contemplated by the memorandum of complaint. The district court has scheduled the case for trial in understanding, National City made additional disclosures February 2010. related to the proposed merger. Following completion of confirmatory discovery by counsel to the plaintiffs, the parties The other lawsuits were brought by holders of debt and equity entered into a stipulation of settlement on February 2, 2009. securities of Adelphia and have been consolidated for pretrial The stipulation of settlement is subject to customary purposes in the United States District Court for the Southern conditions, including court approval following notice to District of New York. National City’s stockholders. In February 2009, the Court of Chancery preliminarily approved a class of all persons who The pending lawsuits arise out of lending and investment were National City common stockholders during the period banking activities engaged in by PNC subsidiaries and many from the close of business on October 23, 2008 through (and other financial services companies. Collectively, with respect including) December 31, 2008. The Court of Chancery also to some or all of the defendants, the lawsuits allege federal preliminarily approved the settlement and has scheduled a law claims (including violations of federal securities and hearing in May 2009 at which the court will consider the banking laws), violations of common law duties, aiding and fairness, reasonableness, and adequacy of the settlement. If the abetting such violations, voidable preference payments, and settlement is finally approved by the court, it will resolve and fraudulent transfers, among other matters. The lawsuits seek release all claims in all actions that were or could have been monetary damages (including in some cases punitive or treble brought challenging any aspect of the proposed merger, the damages), interest, attorneys’ fees and other expenses, and a merger agreement, and any disclosure made in connection return of the alleged voidable preference and fraudulent therewith. In addition, in connection with the settlement, the transfer payments, among other remedies. parties contemplate that plaintiffs’ counsel will file a petition in the Court of Chancery for an award of attorneys’ fees and Sterling Financial Corporation Matters expenses to be paid by PNC. In April 2008, we completed the acquisition of Sterling through the merger of Sterling Financial Corporation into The PNC Financial Services Group, Inc. As a result, we are now

144 responsible for litigation pending against Sterling and its defendants made to the plaintiffs. CBNV was merged into one subsidiaries at that time. We will also be responsible for future of Mercantile’s banks prior to Mercantile’s acquisition by litigation arising out of the conduct of the business of Sterling PNC. These cases were either filed in, or removed to, the and its subsidiaries before the acquisition. United States District Court for the Western District of Pennsylvania. All of the matters described below arise in connection with Sterling’s commercial finance subsidiary, Equipment Finance In August 2006, a proposed settlement agreement covering an LLC, which we refer to as EFI. We provide additional action in which the plaintiffs and class members have second information regarding the EFI situation in our Registration mortgages that were assigned to Residential Finance Statement on Form S-4 relating to the merger. Corporation (“RFC”) was submitted to the district court for its approval. In January 2008, the district court conditionally See also “Regulatory and Governmental Inquiries” for certified a class for settlement purposes, preliminarily information regarding regulatory matters with respect to approved the proposed settlement agreement, and directed that Sterling and the EFI situation. the settlement agreement be submitted to the class members for their consideration. In August 2008, the district court Several class action lawsuits were filed in May, June and July entered an order giving final approval to the settlement 2007 in the United States District Courts for the Eastern agreement. Some objecting class members have appealed that District of Pennsylvania and the Southern District of New order to the Third Circuit Court of Appeals. Separately, other York related to the EFI situation. In October 2007, the individuals, whose loans were not acquired by RFC, have lawsuits filed in New York were transferred to the actions pending on behalf of themselves or a class alleging Pennsylvania court for coordinated pretrial proceedings. In claims similar to those asserted in the settled action with February 2008, the plaintiffs filed a consolidated amended respect to the RFC loans. In one of these actions, the alleged complaint on behalf of those who purchased Sterling common class overlaps the class in the settled action. These actions stock during the period from April 27, 2004 through May 24, remain pending in the district court. 2007. This complaint names Sterling, Bank of Lancaster County, N.A. (a predecessor to a bank subsidiary of Sterling), In January 2008, the district court also issued an order sending EFI, and members of their management as defendants. The back to state court in North Carolina the claims of two class plaintiffs allege violations of the federal securities laws, members. These two plaintiffs then sought to represent a class including allegations that Sterling’s public statements and of North Carolina borrowers in state court, but the federal filings fraudulently omitted information and included district court in Pennsylvania enjoined class proceedings in fraudulent misrepresentations about the improprieties at EFI March 2008. In April 2008, the General Court of Justice, as well as about their impact on Sterling’s earnings and related Superior Court Division, for Wake County, North Carolina matters. The plaintiffs assert that the price for Sterling stock granted these two plaintiffs’ motion for summary judgment on was fraudulently inflated during the class period due to the their individual claims in this case. We have appealed this alleged omissions and misrepresentations, and seek order to the North Carolina Court of Appeals. unspecified damages, interest, attorneys’ fees and costs. (As a result of our acquisition of Sterling, we may be responsible for The plaintiffs in all of these lawsuits seek unquantified indemnifying individual defendants in connection with this monetary damages, rescission of loans, interest, attorneys’ lawsuit.) We have a tentative agreement to settle this lawsuit, fees and other expenses. which is subject to customary conditions, including court approval following notice to the class. The amount of this BAE Derivative Litigation settlement would not be material to PNC. In September 2007, a derivative lawsuit was filed on behalf of BAE Systems plc by a holder of its American Depositary In addition, a group of shareholders who received Sterling Receipts against current and former directors and officers of common shares as consideration in Sterling acquisition BAE, Prince Bandar bin Sultan, PNC (as successor to Riggs transactions have brought a separate lawsuit asserting claims National Corporation and Riggs Bank, N.A.), Joseph L. similar to those in the consolidated amended complaint. Our Allbritton, Robert L. Allbritton, and Barbara Allbritton. The motion to dismiss this complaint is pending. Other complaint alleges that BAE directors and officers breached shareholders who received Sterling shares in acquisitions have their fiduciary duties by making or permitting to be made also threatened to file similar lawsuits. improper or illegal bribes, kickbacks and other payments with respect to a military contract obtained in the mid-1980s from CBNV Mortgage Litigation the Saudi Arabian Ministry of Defense, and that Prince Bandar Between 2001 and 2003, on behalf of either individual was the primary recipient or beneficiary of these payments. plaintiffs or a class of plaintiffs, several separate actions were The complaint also alleges that Riggs, together with the filed in state and federal courts against Community Bank of Allbrittons (as former directors, officers and controlling Northern Virginia (“CBNV”) and other defendants persons of Riggs), acted as the primary intermediaries through challenging the validity of second mortgage loans the which the payments were laundered and actively concealed,

145 and aided and abetted the BAE defendants’ breaches of the proceedings or other matters specifically described above fiduciary duties. In September 2008, the United States District or otherwise, will have a material adverse effect on our results Court for the District of Columbia granted the motions of all of operations in any future reporting period. defendants to dismiss the plaintiff’s complaint. Plaintiff has appealed to the United States Court of Appeals for the District See Note 25 Commitments and Guarantees for additional of Columbia Circuit. As it relates to PNC, plaintiff is seeking information regarding the Visa indemnification and our unquantified monetary damages (including punitive damages), obligation to provide indemnification to current and former an accounting, interest, attorneys’ fees and other expenses. As officers, directors, employees and agents of PNC and a result of our acquisition of Riggs, PNC may be responsible companies we have acquired, including National City. for indemnifying the Allbrittons in connection with this lawsuit. NOTE 25 COMMITMENTS AND GUARANTEES EQUITY FUNDING AND OTHER COMMITMENTS Regulatory and Governmental Inquiries Our unfunded commitments at December 31, 2008 included As a result of the regulated nature of our business and that of a private equity investments of $540 million and other number of our subsidiaries, particularly in the banking and investments of $178 million. securities areas, we and our subsidiaries are the subject of investigations and other forms of regulatory inquiry, in some STANDBY LETTERS OF CREDIT cases as part of regulatory reviews of specified activities at We issue standby letters of credit and have risk participations multiple industry participants. Among the areas in which there in standby letters of credit and bankers’ acceptances issued by is currently significant regulatory interest are practices in the other financial institutions, in each case to support obligations mutual fund and mortgage lending businesses. Several of our of our customers to third parties, such as remarketing subsidiaries have received requests for information and other programs for customers’ variable rate demand notes. Net inquiries from governmental and regulatory authorities in outstanding standby letters of credit totaled $10.3 billion at these areas. December 31, 2008.

In June 2008, National City was notified that the Chicago If the customer fails to meet its financial or performance Regional Office of the SEC is conducting an informal obligation to the third party under the terms of the contract or investigation of National City. The SEC has requested that there is a need to support a remarketing program, then upon National City provide the SEC with documents concerning, the request of the guaranteed party, we would be obligated to among other things, its loan underwriting experience, make payment to them. The standby letters of credit and risk allowance for loan losses, marketing practices, dividends, participations in standby letters of credit and bankers’ bank regulatory matters and the sale of First Franklin acceptances outstanding on December 31, 2008 had terms Financial Corporation. ranging from less than one year to 14 years. The aggregate maximum amount of future payments PNC could be required The SEC is conducting a non-public investigation into the EFI to make under outstanding standby letters of credit and risk situation at Sterling. The United States Attorney’s Office for participations in standby letters of credit and bankers’ the Eastern District of Pennsylvania is also investigating the acceptances was $13.7 billion at December 31, 2008, of which EFI situation. $5.1 billion support remarketing programs. Our practice is to cooperate fully with regulatory and Assets valued as of December 31, 2008 of approximately $.9 governmental investigations, audits and other inquiries, billion secured certain specifically identified standby letters of including those described above. Such investigations, audits credit. Approximately $3.4 billion in recourse provisions from and other inquiries may lead to remedies such as fines, third parties was also available for this purpose as of restitution or alterations in our business practices. December 31, 2008. In addition, a portion of the remaining standby letters of credit and letter of credit risk participations Other issued on behalf of specific customers is also secured by In addition to the proceedings or other matters described collateral or guarantees that secure the customers’ other above, PNC and persons to whom we may have obligations to us. The carrying amount of the liability for our indemnification obligations, in the normal course of business, obligations related to standby letters of credit and risk are subject to various other pending and threatened legal participations in standby letters of credit and bankers’ proceedings in which claims for monetary damages and other acceptances was $119 million at December 31, 2008. relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on STANDBY BOND PURCHASE AGREEMENTS AND OTHER our financial position. However, we cannot now determine LIQUIDITY FACILITIES whether or not any claims asserted against us or others to We enter into standby bond purchase agreements to support whom we may have indemnification obligations, whether in municipal bond obligations. At December 31, 2008, the

146 aggregate of our commitments under these facilities was $452 • Arrangements with brokers to facilitate the hedging million. We also enter into certain other liquidity facilities to of derivative and convertible arbitrage activities, and support individual pools of receivables acquired by • Litigation settlement agreements. commercial paper conduits including Market Street. At December 31, 2008, our total commitments under these Due to the nature of these indemnification provisions, we facilities were $6.6 billion, of which $6.4 billion was related cannot calculate our aggregate potential exposure under them. to Market Street. We enter into certain types of agreements, including leases, INDEMNIFICATIONS assignments of leases, and subleases, in which we agree to We are a party to numerous acquisition or divestiture indemnify third parties for acts by our agents, assignees and/or agreements under which we have purchased or sold, or agreed sublessees, and employees. Due to the nature of these to purchase or sell, various types of assets. These agreements indemnification provisions, we cannot calculate our aggregate can cover the purchase or sale of: potential exposure under them. • Entire businesses, • Loan portfolios, We enter into contracts for the delivery of technology service • Branch banks, in which we indemnify the other party against claims of patent • Partial interests in companies, or and copyright infringement by third parties. Due to the nature • Other types of assets. of these indemnification provisions, we cannot calculate our aggregate potential exposure under this type of These agreements generally include indemnification indemnification. provisions under which we indemnify the third parties to these agreements against a variety of risks to the indemnified parties We engage in certain insurance activities which require our as a result of the transaction in question. When PNC is the employees to be bonded. We satisfy this bonding requirement seller, the indemnification provisions will generally also by issuing letters of credit which were insignificant at provide the buyer with protection relating to the quality of the December 31, 2008. assets we are selling and the extent of any liabilities being assumed by the buyer. Due to the nature of these In the ordinary course of business, we enter into contracts with indemnification provisions, we cannot quantify the total third parties under which the third parties provide services on potential exposure to us resulting from them. behalf of PNC. In many of these contracts, we agree to indemnify the third party service provider under certain We provide indemnification in connection with securities circumstances. The terms of the indemnity vary from contract offering transactions in which we are involved. When we are to contract and the amount of the indemnification liability, if the issuer of the securities, we provide indemnification to the any, cannot be determined. underwriters or placement agents analogous to the indemnification provided to the purchasers of businesses from We are a general or limited partner in certain asset us, as described above. When we are an underwriter or management and investment limited partnerships, many of placement agent, we provide a limited indemnification to the which contain indemnification provisions that would require issuer related to our actions in connection with the offering us to make payments in excess of our remaining funding and, if there are other underwriters, indemnification to the commitments. While in certain of these partnerships the other underwriters intended to result in an appropriate sharing maximum liability to us is limited to the sum of our unfunded of the risk of participating in the offering. Due to the nature of commitments and partnership distributions received by us, in these indemnification provisions, we cannot quantify the total the others the indemnification liability is unlimited. As a potential exposure to us resulting from them. result, we cannot determine our aggregate potential exposure for these indemnifications. We enter into certain types of agreements that include provisions for indemnifying third parties, such as: Pursuant to their bylaws, PNC and its subsidiaries provide • Agreements relating to providing various servicing indemnification to directors, officers and, in some cases, and processing functions to third parties, employees and agents against certain liabilities incurred as a • Agreements relating to the creation of trusts or other result of their service on behalf of or at the request of PNC legal entities to facilitate leasing transactions, and its subsidiaries. PNC and its subsidiaries also advance on commercial and residential mortgage-backed behalf of covered individuals costs incurred in connection securities transactions (loan securitizations) and with certain claims or proceedings, subject to written certain other off-balance sheet transactions, undertakings by each such individual to repay all amounts • Confidentiality agreements, advanced if it is ultimately determined that the individual is • Syndicated credit agreements, as a syndicate not entitled to indemnification. We generally are responsible member, for similar indemnifications and advancement obligations that • Sales of individual loans and equipment leases, companies we acquire (including Riggs, Sterling and National

147 City), had to their officers, directors and sometimes In October 2008, Visa reached a settlement with Discover employees and agents at the time of acquisition. We advanced Financial Services related to another of the specified litigation. such costs on behalf of several such individuals (including As a result, we recorded an incremental indemnification some from Riggs and Sterling) with respect to pending liability of $13 million. litigation or investigations during 2008. It is not possible for us to determine the aggregate potential exposure resulting Based on the cumulative impact of this settlement and from the obligation to provide this indemnity or to advance previous settlements, Visa determined that additional escrow such costs. funds were necessary and set aside an additional $1.1 billion in cash for the remaining specified litigation cases in the In connection with the lending of securities facilitated by fourth quarter 2008. In connection with Visa’s cash allocation Global Investment Servicing as an intermediary on behalf of to the escrow fund, Visa reduced the Visa B common share to certain of its clients, we provide indemnification to those Visa A common share conversion ratio from approximately clients against the failure of the borrowers to return the 71% to 63%. We determined that these actions effectively securities. The market value of the securities lent is fully settled a proportionate share of our estimated indemnification secured on a daily basis; therefore, the exposure to us is liability for the remaining specified litigation. As a result, we limited to temporary shortfalls in the collateral as a result of reduced our indemnification liability by $16 million with a short-term fluctuations in trading prices of the loaned corresponding credit to noninterest expense. securities. At December 31, 2008, the total maximum potential exposure as a result of these indemnity obligations As a result of the acquisition of National City, we became was $7.9 billion, although the collateral at the time exceeded party to judgment and loss sharing agreements with Visa and that amount. certain other banks. The judgment and loss sharing agreements were designed to apportion financial VISA INDEMNIFICATION responsibilities arising from any potential adverse judgment or Our payment services business issues and acquires credit and negotiated settlements related to the specified litigation. The debit card transactions through Visa U.S.A. Inc. card acquisition of National City resulted in the recognition of an association or its affiliates (“Visa”). additional indemnification liability of $224 million. As a result of the indemnification provision in Section 2.05j of the In October 2007 Visa completed a restructuring and issued Visa By-Laws and/or the indemnification provided through shares of Visa Inc. common stock to its financial institution the judgment and loss sharing agreements, PNC’s Visa members (“Visa Reorganization”) in contemplation of its indemnification liability at December 31, 2008 totaled $260 initial public offering (“IPO”). As part of the Visa million. Reorganization, we received our proportionate share of a class of Visa Inc. common stock allocated to the US members. Prior RECOURSE AGREEMENTS to the IPO, the US members were obligated to indemnify Visa We are authorized to originate, underwrite, close to fund and for judgments and settlements related to specified litigation. In service commercial mortgage loans and then sell them to accordance with GAAP, during the fourth quarter of 2007 we FNMA under FNMA’s DUS program. We have similar recorded a liability and pretax operating expense of $82 arrangements with FHLMC. million representing our estimate of the fair value of our indemnification obligation for potential losses arising from Under these programs, we generally assume up to one-third of this litigation. the risk of loss on unpaid principal balances through a loss share arrangement. At December 31, 2008, the potential Visa’s IPO occurred in March 2008. Visa redeemed exposure to loss was $5.7 billion. Accordingly, we maintain a 2.2 million of our investment in Visa Class B common shares reserve for such potential losses which approximates the fair for cash out of the proceeds of the IPO. Accordingly, we value of this exposure. At December 31, 2008, the unpaid recognized a pretax gain of $95 million during the first quarter principal balance outstanding of loans sold as a participant in of 2008 in other noninterest income in connection with this these programs was $18.6 billion. The fair value of the loss redemption. In addition, Visa set aside $3 billion of the IPO share arrangement in the form of reserves for losses under proceeds in an escrow account for the benefit of the US these programs, totaled $79 million as of December 31, 2008 member financial institutions to fund the expenses of the and is included in other liabilities on our Consolidated litigation as well as the members’ proportionate share of any Balance Sheet. If payment is required under these programs, judgments or settlements that may arise out of the litigation. we would not have a contractual interest in the collateral Therefore, we reduced our indemnification liability underlying the mortgage loans on which losses occurred, proportionately based upon the escrowed amount via a credit although the value of the collateral is taken into account in to noninterest expense of $43 million pretax during the first determining our share of such losses. The serviced loans are quarter of 2008. not included on our Consolidated Balance Sheet.

148 National City sold residential mortgage loans and home equity We enter into credit default swaps under which we buy loss lines of credit (collectively, loans) in the normal course of protection from or sell loss protection to a counterparty for the business. These agreements usually require certain occurrence of a credit event of a reference entity. The fair representations concerning credit information, loan value of the contracts sold on our Consolidated Balance Sheet documentation, collateral, and insurability. On a regular basis, was a net liability of $80 million at December 31, 2008. The investors may request PNC to indemnify them against losses maximum amount we would be required to pay under the on certain loans or to repurchase loans which the investors credit default swaps in which we sold protection, assuming all believe do not comply with applicable representations. Upon reference obligations experience a credit event at a total loss, completion of its own investigation as to the validity of the without recoveries, was $955 million at December 31, 2008. claim, PNC will repurchase or provide indemnification on such loans. Indemnification requests are generally received We have also entered into various contingent performance within two years subsequent to the date of sale. guarantees through credit risk participation arrangements with terms ranging from less than one year to 23 years. As of Management maintains a liability for estimated losses on December 31, 2008 the notional amount of risk participations loans expected to be repurchased, or on which indemnification agreements was $1.9 billion with a weighted-average is expected to be provided, and regularly evaluates the remaining maturity of 3 years. The fair value of these adequacy of this recourse liability based on trends in agreements on our Consolidated Balance Sheet was a net repurchase and indemnification requests, actual loss liability of $3 million. Based on the Corporation’s internal risk experience, known and inherent risks in the loans, and current rating process, 98% of the notional amount of the risk economic conditions. At December 31, 2008 the liability for participations agreements outstanding had underlying swap estimated losses on repurchase and indemnification claims counterparties with internal credit ratings of pass, indicating was $406 million. the expected risk of loss is currently low, while 2% had underlying swap counterparties with internal risk ratings below pass, indicating a higher degree of risk of default. We OTHER GUARANTEES will be required to make payments under these guarantees if a We write caps and floors for customers, risk management and customer defaults on its obligation to perform under certain proprietary trading purposes. At December 31, 2008, the fair credit agreements with third parties. Assuming all underlying value of the written caps and floors liability on our swap counterparties defaulted, the maximum potential Consolidated Balance Sheet was $12 million. Our ultimate exposure from these agreements as of December 31, 2008 obligation under written options is based on future market would be $128 million based on the fair value of the conditions and is only quantifiable at settlement. We manage underlying swaps. our market risk exposure from customer positions through transactions with third-party dealers. CONTINGENT PAYMENTS IN CONNECTION WITH CERTAIN ACQUISITIONS CREDIT DEFAULT SWAPS A number of the acquisition agreements to which we are a party and under which we have purchased various types of Weighted- assets, including the purchase of entire businesses, partial Average Estimated Remaining interests in companies, or other types of assets, require us to December 31, 2008 Notional net fair Maturity make additional payments in future years if certain Dollars in millions amount value In Years predetermined goals are achieved or not achieved within a Credit Default Swaps – Guarantees specific time period. Due to the nature of the contract Single name $ 278 $ (38) 3.84 Index traded 677 (42) 4.84 provisions, we cannot quantify our total exposure that may result from these agreements. Total (a) $ 955 $ (80) 4.54 Credit Default Swaps – Beneficiaries Single name $ 974 $ 84 3.82 Index traded 1,008 201 31.82 Total (b) $1,982 $285 18.06 Total (c) $2,937 $205 13.67

(a) Includes $883 million of investment grade credit default swaps with a rating of Baa3 or above and $72 million of subinvestment grade based on published rating agency information. (b) Includes $1.7 billion of investment grade credit default swaps with a rating of Baa3 or above and $263 million of subinvestment grade based on published rating agency information. (c) The referenced/underlying assets for these credit default swaps is approximately 70% corporate debt, 27% commercial mortgage backed securities and 3% related to loans.

149 NOTE 26 PARENT COMPANY Balance Sheet

Summarized financial information of the parent company is as December 31 - in millions 2008 (a) 2007 follows: ASSETS Cash and due from banks $15$20 Income Statement Short-term investments 140 58 Investment securities 164 Year ended December 31 - in millions 2008 2007 2006 Loans (b) 2,275 OPERATING REVENUE Investments in: Dividends from: Bank subsidiaries and bank holding Bank subsidiaries and bank holding company 27,960 15,776 company $1,012 $1,078 $ 710 Non-bank subsidiaries 2,378 2,214 Non-bank subsidiaries 168 74 69 Other assets 1,821 614 Interest income 4 15 16 Noninterest income 18 23 9 Total assets $34,753 $18,682 Total operating revenue 1,202 1,190 804 LIABILITIES Subordinated debt $ 4,122 $ 968 OPERATING EXPENSE Senior debt 2,707 Interest expense 152 160 93 Other borrowed funds 2 Other expense 46 84 46 Nonbank affiliate borrowings 945 2,478 Total operating expense 198 244 139 Accrued expenses and other liabilities 1,554 382 Income before income taxes and equity Total liabilities 9,330 3,828 in undistributed net income of Minority and noncontrolling interests in subsidiaries 1,004 946 665 consolidated entities 1 Income tax benefits (50) (78) (60) SHAREHOLDERS’EQUITY 25,422 14,854 Income before equity in undistributed net income of Total liabilities, minority and subsidiaries 1,054 1,024 725 noncontrolling interests, and shareholders’ equity $34,753 $18,682 Equity in undistributed net income of subsidiaries: (a) Includes the impact of National City. (b) Balance represents National City loans with subsidiaries. Bank subsidiaries and bank holding company (125) 229 1,653 Non-bank subsidiaries (47) 214 217 Commercial paper and all other debt issued by PNC Funding Corp, a wholly owned finance subsidiary, is fully and Net income $ 882 $1,467 $2,595 unconditionally guaranteed by the parent company. In addition, in connection with certain affiliates’ commercial and residential mortgage servicing operations, the parent company has committed to maintain such affiliates’ net worth above minimum requirements.

The parent company received net income tax refunds of $92 million in 2008, $65 million in 2007 and $35 million in 2006. Such refunds represent the parent company’s portion of consolidated income taxes. The parent company paid interest of $147 million in 2008, $146 million in 2007 and $113 million in 2006.

150 Statement Of Cash Flows company. We refine our methodologies from time to time as Year ended December 31 - in millions 2008 2007 2006 our management accounting practices are enhanced and our OPERATING ACTIVITIES businesses and management structure change. Financial Net income $ 882 $ 1,467 $ 2,595 results are presented, to the extent practicable, as if each Adjustments to reconcile net income business operated on a stand-alone basis. As permitted under to net cash provided (used) by GAAP, we have aggregated the business results for certain operating activities: similar operating segments for financial reporting purposes. Equity in undistributed net (earnings) of subsidiaries 172 (443) (1,870) The business segment results in this Note 27 do not include Other 156 61 103 the impact of National City, which we acquired on Net cash provided by operating December 31, 2008. activities 1,210 1,085 828 INVESTING ACTIVITIES Assets receive a funding charge and liabilities and capital Net capital returned from receive a funding credit based on a transfer pricing (contributed to) subsidiaries (8,298) (165) 300 methodology that incorporates product maturities, duration Investment securities: and other factors. Capital is intended to cover unexpected Sales and maturities 1,090 3,440 losses and is assigned to the banking and servicing businesses Purchases (800) (3,437) Net cash received from (paid for) using our risk-based economic capital model. We have acquisitions 1,431 (2,231) assigned to Retail Banking capital equal to 6% of funds to Other (104) (26) (311) reflect the capital required for well-capitalized domestic banks Net cash used in investing and to approximate market comparables for this business. The activities (6,971) (2,132) (8) capital assigned for Global Investment Servicing reflects its legal entity shareholder’s equity. FINANCING ACTIVITIES Borrowings from non-bank subsidiary 2,100 3,910 210 BlackRock business segment results for the first nine months Repayments on borrowings from of 2006 reflected our majority ownership in BlackRock during non-bank subsidiary (3,633) (1,432) (210) that period. Subsequent to the September 29, 2006 BlackRock/ Other short-term borrowed funds 103 MLIM transaction closing, which had the effect of reducing Acquisition of treasury stock (234) (963) (531) our ownership interest at that time to approximately 34%, our Cash dividends paid to shareholders (923) (806) (633) investment in BlackRock has been accounted for under the TARP warrant 304 equity method but continues to be a separate reportable Treasury stock 375 253 343 business segment of PNC. The fair value of our investment in Preferred stock-TARP 7,275 BlackRock at December 31, 2008 was approximately $5.8 Preferred stock-other 492 billion. Our BlackRock business segment information for the Net cash provided by (used in) first nine months of 2006 included in this Note 27 was not financing activities 5,756 1,065 (821) restated. Increase (decrease) in cash and due from banks (5) 18 (1) We have allocated the allowances for loan and lease losses Cash and due from banks at and unfunded loan commitments and letters of credit based on beginning of year 20 23 our assessment of risk inherent in the business segment loan Cash and due from banks at end portfolios. Our allocation of the costs incurred by operations of year $15$20$2 and other shared support areas not directly aligned with the businesses is primarily based on the use of services. NOTE 27 SEGMENT REPORTING We have four major businesses engaged in providing banking, Total business segment financial results differ from total asset management and global investment servicing products consolidated results. The impact of these differences is and services: reflected in the “Intercompany Eliminations” and “Other” • Retail Banking, categories in the business segment tables. “Intercompany • Corporate & Institutional Banking, Eliminations” reflects activities conducted among our • BlackRock, and businesses that are eliminated in the consolidated results. • Global Investment Servicing “Other” includes residual activities that do not meet the Results of individual businesses are presented based on our criteria for disclosure as a separate reportable business, such management accounting practices and management structure. as gains or losses related to BlackRock transactions including There is no comprehensive, authoritative body of guidance for LTIP share distributions and obligations, earnings and gains or management accounting equivalent to GAAP; therefore, the losses related to Hilliard Lyons for 2008, integration costs, financial results of our individual businesses are not asset and liability management activities including net necessarily comparable with similar information for any other securities gains or losses and certain trading activities, equity

151 management activities, minority interest in income of disbursement services, funds transfer services, information BlackRock for the first nine months of 2006, differences reporting, and global trade services. Capital markets-related between business segment performance reporting and products and services include foreign exchange, derivatives, financial statement reporting (GAAP), and most corporate loan syndications, mergers and acquisitions advisory and overhead. related services to middle-market companies, securities underwriting, and securities sales and trading. Corporate & Assets, revenue and earnings attributable to foreign activities Institutional Banking also provides commercial loan servicing, were not material in the periods presented for comparative and real estate advisory and technology solutions for the purposes. commercial real estate finance industry. Corporate & Institutional Banking provides products and services generally See Note 28 Subsequent Event regarding changes to our within PNC’s primary geographic markets, with certain business segments beginning in the first quarter of 2009. products and services offered nationally.

BUSINESS SEGMENT PRODUCTS AND SERVICES BlackRock is one of the largest publicly traded investment Retail Banking provides deposit, lending, brokerage, trust, management firms in the United States. BlackRock manages investment management, and cash management services to assets on behalf of institutional and individual investors consumer and small business customers within our primary worldwide through a variety of fixed income, cash geographic markets. Our customers are serviced through our management, equity and balanced and alternative investment branch network, the call center and the internet. The branch separate accounts and funds. In addition, BlackRock provides network is located primarily in Pennsylvania, New Jersey, risk management, investment system outsourcing and Washington, DC, Maryland, Virginia, Delaware, Ohio, financial advisory services globally to institutional investors. Kentucky, Indiana, Illinois, Michigan, Missouri, Florida, and At December 31, 2008, PNC’s ownership interest in Wisconsin. BlackRock was approximately 33%.

Retail Banking also serves as investment manager and trustee Global Investment Servicing is a leading provider of for employee benefit plans and charitable and endowment processing, technology and business intelligence services to assets and provides nondiscretionary defined contribution plan asset managers, broker-dealers, and financial advisors services. These services are provided to individuals and worldwide. Securities services include custody, securities corporations primarily within our primary geographic markets. lending, and accounting and administration for funds registered under the Investment Company Act of 1940 and Corporate & Institutional Banking provides lending, treasury alternative investments. Investor services include transfer management, and capital markets-related products and agency, subaccounting, and distribution. Financial advisor services to mid-sized corporations, government entities, and services include managed accounts and information selectively to large corporations. Lending products include management. This business segment services shareholder secured and unsecured loans, letters of credit and equipment accounts both domestically and internationally. International leases. Treasury management services include cash and locations include Ireland, Poland and Luxembourg. investment management, receivables management,

152 Results Of Businesses

Corporate & Global Year ended December 31 Retail Institutional Investment Intercompany In millions Banking Banking BlackRock Servicing Other Eliminations Consolidated 2008 INCOME STATEMENT Net interest income (expense) $ 1,982 $ 1,024 $ (31) $ 848 $ 3,823 Noninterest income 1,616 494 $ 261 947 103 $ (54) 3,367 Total revenue 3,598 1,518 261 916 951 (54) 7,190 Provision for credit losses 612 366 539 1,517 Depreciation and amortization 133 24 73 137 367 Other noninterest expense 2,151 858 662 441 (49) 4,063 Earnings (loss) before income taxes 702 270 261 181 (166) (5) 1,243 Income taxes (benefit) 273 45 54 63 (73) (1) 361 Earnings (loss) $ 429 $ 225 $ 207 $ 118 $ (93) $ (4) $ 882 Inter-segment revenue $ 17 $ 14 $ 15 $ 22 $ (9) $ (59) Average Assets (a) $46,578 $36,994 $4,240 $5,278 $53,604 $(4,674) $142,020 2007 INCOME STATEMENT Net interest income (expense) $ 2,059 $ 805 $ (32) $ 83 $ 2,915 Noninterest income 1,736 720 $ 334 863 175 $ (38) 3,790 Total revenue 3,795 1,525 334 831 258 (38) 6,705 Provision for credit losses 138 125 52 315 Depreciation and amortization 124 22 60 97 303 Other noninterest expense 2,115 796 577 544 (39) 3,993 Earnings (loss) before income taxes 1,418 582 334 194 (435) 1 2,094 Income taxes (benefit) 525 150 84 66 (198) 627 Earnings (loss) $ 893 $ 432 $ 250 $ 128 $ (237) $ 1 $ 1,467 Inter-segment revenue $ 23 $ 9 $ 16 $ 17 $ (27) $ (38) Average Assets (a) $42,424 $29,052 $4,259 $2,476 $48,885 $(3,678) $123,418 2006 INCOME STATEMENT Net interest income (expense) $ 1,673 $ 711 $ 20 $ (38) $ (121) $ 2,245 Noninterest income 1,447 752 1,135 917 2,137 $ (61) 6,327 Total revenue 3,120 1,463 1,155 879 2,016 (61) 8,572 Provision for credit losses 81 42 1 124 Depreciation and amortization 67 23 29 57 99 275 Other noninterest expense 1,760 726 828 646 266 (58) 4,168 Earnings (loss) before minority interests in BlackRock and income taxes 1,212 672 298 176 1,650 (3) 4,005 Minority interests in BlackRock 47 47 Income taxes (benefit) 447 209 104 52 552 (1) 1,363 Earnings (loss) $ 765 $ 463 $ 194 $ 124 $ 1,051 $ (2) $ 2,595 Inter-segment revenue $ 13 $ 9 $ 28 $ 12 $ (1) $ (61) Average Assets (a) $29,248 $26,548 $3,937 $2,204 $35,611 $(2,536) $ 95,012

(a) Period-end balances for BlackRock and Global Investment Servicing.

153 NOTE 28 SUBSEQUENT EVENT clients. The clients served include privately held Beginning in the first quarter of 2009, PNC will have three corporations, charitable endowments and new reportable business segments. These new business foundations, as well as unions, residing primarily in segments reflect the impact of our December 31, 2008 PNC’s geographic footprint and generally acquisition of National City and are as follows: complementing its corporate banking relationships. Personal wealth management products and services • Residential Mortgage Banking – The Residential include private banking services and tailored credit Mortgage Banking business segment directly solutions, customized investment management originates first lien residential mortgage loans on a services, financial planning, as well as trust nationwide basis with a significant presence within management and administration for affluent the retail banking footprint and also originates loans individuals and families. This segment includes the through a joint venture partner. Mortgage loans wealth management business acquired with National represent loans collateralized by one-to-four-family City and the legacy wealth management business residential real estate and are made to borrowers in currently included in Retail Banking. good credit standing. These loans are typically underwritten to third party standards and sold to • Distressed Assets Portfolio – The Distressed Assets primary mortgage market aggregators (Fannie Mae, Portfolio business segment includes residential real Freddie Mac, Ginnie Mae, Federal Home Loan Banks estate development loans, cross-border leases, and third-party investors) with servicing retained. subprime residential mortgage loans, brokered home The mortgage servicing operation performs all equity loans and certain other residential real estate functions related to servicing first mortgage loans for loans. These loans require special servicing and various investors. Loans originated through the joint management oversight given current market venture are serviced by our joint venture partner. conditions. The majority of these loans are from acquisitions, primarily National City. • PNC Asset Management Group – The PNC Asset Management Group business segment includes In addition to these new segments, we will continue to report institutional asset and personal wealth management. our four current business segments: Retail Banking, Institutional asset management provides investment Corporate & Institutional Banking, BlackRock and Global management, custody, retirement planning services, Investment Servicing. and other corporate trust services to institutional

154 STATISTICAL INFORMATION (UNAUDITED) THE PNC FINANCIAL SERVICES GROUP, INC.

Selected Quarterly Financial Data 2008 2007 Dollars in millions, except per share data Fourth Third Second First Fourth Third Second First Summary of Operations Interest income $1,543 $1,574 $1,577 $1,619 $1,670 $1,627 $1,554 $1,315 Interest expense 551 574 600 765 877 866 816 692 Net interest income 992 1,000 977 854 793 761 738 623 Noninterest income (a) 684 654 1,062 967 834 990 975 991 Total revenue 1,676 1,654 2,039 1,821 1,627 1,751 1,713 1,614 Provision for credit losses (b) 990 190 186 151 188 65 54 8 Noninterest expense 1,131 1,142 1,115 1,042 1,213 1,099 1,040 944 Income (loss) before income taxes (445) 322 738 628 226 587 619 662 Income taxes (benefit) (197) 74 233 251 48 180 196 203 Net income (loss) $ (248) $ 248 $ 505 $ 377 $ 178 $ 407 $ 423 $ 459 Per Common Share Data Book value $39.44 $39.44 $42.17 $42.26 $43.60 $43.12 $42.36 $42.63 Basic earnings (c) (.77) .72 1.47 1.11 .53 1.21 1.24 1.49 Diluted earnings (c) (.77) .71 1.45 1.09 .52 1.19 1.22 1.46 (a) Noninterest income included equity management gains /(losses) and net securities gains/(losses) in each quarter as follows (in millions):

2008 2007 Fourth Third Second First Fourth Third Second First Equity management gains/(losses) $ (16) $ (24) $ (7) $ 23 $21$47$ 2$32 Net securities gains/(losses) (172) (74) (1) 41 (1) (2) 1 (3) (b) The fourth quarter 2008 provision for credit losses included a $504 million conforming provision for credit losses related to our acquisition of National City. (c) The sum of quarterly amounts for 2008 and 2007 does not equal the respective year’s amount because the quarterly calculations are based on a changing number of average shares.

155 Analysis Of Year-To-Year Changes In Net Interest Income

2008/2007 2007/2006 Increase/(Decrease) in Income/ Increase/(Decrease) in Income/ Expense Due to Changes in: Expense Due to Changes in: Taxable-equivalent basis - in millions Volume Rate Total Volume Rate Total Interest-Earning Assets Investment securities Securities available for sale Residential mortgage-backed $157 $ 4 $ 161 $ 228 $ 73 $ 301 Commercial mortgage-backed 89 (4) 85 93 19 112 Asset-backed 37 37 55 (3) 52 U.S. Treasury and government agencies (14) 4 (10) (91) 2 (89) State and municipal 25 25 4 (1) 3 Other debt 9 (1) 8 (4) 2 (2) Corporate stocks and other 1 (7) (6) 7 (3) 4 Total securities available for sale 308 (8) 300 276 105 381 Securities held to maturity 23 23 Total investment securities 331 (8) 323 276 105 381 Loans Commercial 358 (373) (15) 386 22 408 Commercial real estate 117 (178) (61) 348 23 371 Equipment lease financing 55 (9) (38) (47) Consumer 171 (203) (32) 103 55 158 Residential mortgage 27 (3) 24 97 40 137 Other (8) (5) (13) 55 Total loans 644 (736) (92) 871 161 1,032 Loans held for sale (29) 11 (18) 17 10 27 Federal funds sold and resale agreements 13 (46) (33) 49 (3) 46 Other 9 (33) (24) 53 17 70 Total interest-earning assets $966 $ (810) $ 156 $1,271 $285 $1,556 Interest-Bearing Liabilities Interest-bearing deposits Money market $116 $ (377) $(261) $ 141 $ 23 $ 164 Demand 8 (43) (35) 12 3 15 Savings (4) (4) 3 (1) 2 Retail certificates of deposit (2) (177) (179) 120 74 194 Other time 88 (49) 39 39 5 44 Time deposits in foreign offices 18 (146) (128) 49 (5) 44 Total interest-bearing deposits 226 (794) (568) 349 114 463 Borrowed funds Federal funds purchased and repurchase agreements (34) (204) (238) 137 (1) 136 Federal Home Loan Bank borrowings 256 (44) 212 77 7 84 Bank notes and senior debt (12) (128) (140) 169 9 178 Subordinated debt 40 (72) (32) (10) (8) (18) Other 50 (45) 5 33 8 41 Total borrowed funds 351 (544) (193) 416 5 421 Total interest-bearing liabilities 534 (1,295) (761) 714 170 884 Change in net interest income $530 $ 387 $ 917 $ 608 $ 64 $ 672

Changes attributable to rate/volume are prorated into rate and volume components.

156 Average Consolidated Balance Sheet And Net Interest Analysis

2008 2007 2006 Interest Average Interest Average Interest Average Taxable-equivalent basis Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Dollars in millions Balances Expense Rates Balances Expense Rates Balances Expense Rates Assets Interest-earning assets Investment securities Securities available for sale Residential mortgage-backed $ 22,058 $1,202 5.45% $ 19,163 $1,041 5.43% $14,881 $ 740 4.97% Commercial mortgage-backed 5,666 307 5.42 4,025 222 5.52 2,305 110 4.77 Asset-backed 3,126 159 5.09 2,394 122 5.10 1,312 70 5.34 U.S. Treasury and government agencies 50 3 6.00 293 13 4.44 2,334 102 4.37 State and municipal 764 36 4.71 227 11 4.85 148 8 5.41 Other debt 220 12 5.45 47 4 8.51 89 6 6.74 Corporate stocks and other 412 12 2.91 392 18 4.59 246 14 5.69 Total securities available for sale 32,296 1,731 5.36 26,541 1,431 5.39 21,315 1,050 4.93 Securities held to maturity 402 23 5.72 Total investment securities 32,698 1,754 5.36 26,541 1,431 5.39 21,315 1,050 4.93 Loans Commercial 30,962 1,844 5.96 25,509 1,859 7.29 20,201 1,451 7.18 Commercial real estate 9,368 542 5.79 7,671 603 7.86 3,212 232 7.22 Equipment lease financing 2,566 81 3.16 2,559 76 2.97 2,777 123 4.43 Consumer 20,526 1,135 5.53 17,718 1,167 6.59 16,125 1,009 6.26 Residential mortgage 9,017 536 5.94 8,564 512 5.98 6,888 375 5.44 Other 305 18 5.90 432 31 7.18 363 26 7.16 Total loans 72,744 4,156 5.71 62,453 4,248 6.80 49,566 3,216 6.49 Loans held for sale 2,502 166 6.63 2,955 184 6.23 2,683 157 5.85 Federal funds sold and resale agreements 2,472 71 2.87 2,152 104 4.83 1,143 58 5.07 Other 4,068 202 4.97 3,909 226 5.78 2,985 156 5.23 Total interest-earning assets/interest income 114,484 6,349 5.55 98,010 6,193 6.32 77,692 4,637 5.97 Noninterest-earning assets Allowance for loan and lease losses (962) (690) (591) Cash and due from banks 2,705 3,018 3,121 Other 25,793 23,080 14,790 Total assets $142,020 $123,418 $95,012 Liabilities, Minority and Noncontrolling Interests, and Shareholders’ Equity Interest-bearing liabilities Interest-bearing deposits Money market $ 27,625 566 2.05 $ 23,840 827 3.47 $19,745 663 3.36 Demand 9,947 68 .68 9,259 103 1.11 8,187 88 1.07 Savings 2,714 8 .29 2,687 12 .45 2,081 10 .48 Retail certificates of deposit 16,642 597 3.59 16,690 776 4.65 13,999 582 4.16 Other time 4,424 149 3.37 2,119 110 5.19 1,364 66 4.84 Time deposits in foreign offices 5,006 97 1.94 4,623 225 4.87 3,613 181 5.01 Total interest-bearing deposits 66,358 1,485 2.24 59,218 2,053 3.47 48,989 1,590 3.25 Borrowed funds Federal funds purchased and repurchase agreements 7,228 156 2.16 7,983 394 4.94 5,286 258 4.88 Federal Home Loan Bank borrowings 9,303 321 3.45 2,168 109 5.03 623 25 4.01 Bank notes and senior debt 6,064 197 3.25 6,282 337 5.36 3,128 159 5.08 Subordinated debt 4,990 219 4.39 4,247 251 5.91 4,417 269 6.09 Other 3,737 112 3.00 2,344 107 4.56 1,589 66 4.15 Total borrowed funds 31,322 1,005 3.21 23,024 1,198 5.20 15,043 777 5.17 Total interest-bearing liabilities/interest expense 97,680 2,490 2.55 82,242 3,251 3.95 64,032 2,367 3.70 Noninterest-bearing liabilities, minority and noncontrolling interests, and shareholders’ equity Demand and other noninterest-bearing deposits 18,155 17,587 14,320 Allowance for unfunded loan commitments and letters of credit 134 125 106 Accrued expenses and other liabilities 10,033 8,195 6,672 Minority and noncontrolling interests in consolidated entities 1,981 1,335 600 Shareholders’ equity 14,037 13,934 9,282 Total liabilities, minority and noncontrolling interests, and shareholders’ equity $142,020 $123,418 $95,012 Interest rate spread 3.00 2.37 2.27 Impact of noninterest-bearing sources .37 .63 .65 Net interest income/margin $3,859 3.37% $ 2,942 3.00% $2,270 2.92%

Nonaccrual loans are included in loans, net of unearned income. The impact of financial derivatives used in interest rate risk management is included in the interest income/expense and average yields/rates of the related assets and liabilities. Basis adjustments related to hedged items are included in noninterest-earning assets and noninterest-bearing liabilities. Average balances of securities are based on amortized historical cost (excluding SFAS 115 adjustments to fair value which are included in other assets). Average balances for certain loans and borrowed funds accounted for at fair value, with changes in fair value recorded in trading noninterest income, are included in noninterest-earning assets and noninterest-bearing liabilities.

Loan fees for the years ended December 31, 2008, 2007 and 2006 were $55 million, $39 million and $35 million, respectively. Interest income includes the effects of taxable-equivalent adjustments using a marginal federal income tax rate of 35% to increase tax-exempt interest income to a taxable-equivalent basis. The taxable- equivalent adjustments to interest income for the years ended December 31, 2008, 2007 and 2006 were $36 million, $27 million and $25 million, respectively.

157 LOANS OUTSTANDING

December 31 - in millions 2008 (a) 2007 2006 2005 2004 Commercial $ 67,319 $28,539 $20,508 $19,258 $17,438 Commercial real estate 25,736 8,903 3,527 3,157 1,980 Equipment lease financing 6,461 2,514 2,789 2,792 3,197 TOTAL COMMERCIAL LENDING 99,516 39,956 26,824 25,207 22,615 Consumer 52,489 18,393 16,569 16,246 15,604 Residential real estate 21,583 9,557 6,337 7,307 4,772 TOTAL CONSUMER LENDING 74,072 27,950 22,906 23,553 20,376 Other 1,901 413 375 341 504 Total loans $175,489 $68,319 $50,105 $49,101 $43,495 (a) Includes $99.7 billion of loans related to National City.

NONPERFORMING ASSETS AND RELATED INFORMATION

December 31 - dollars in millions 2008 (a) 2007 2006 2005 2004 Nonaccrual loans Commercial $ 576 $193 $109 $ 134 $ 89 Commercial real estate 766 212 12 14 14 Equipment lease financing 97 3 1 17 5 Consumer 70 17 13 10 11 Residential real estate 153 27 25 24 28 Total nonaccrual loans $1,662 $452 $160 $ 199 $147 Troubled debt restructured loan 23 Total nonperforming loans 1,662 454 160 199 150 Foreclosed and other assets Lease 11 12 13 14 Residential real estate 458 10 10 9 10 Other 45 20 2 3 5 Total foreclosed and other assets 503 41 24 25 29 Total nonperforming assets (b) (c) $2,165 $495 $184 $ 224 $179 Nonperforming loans to total loans .95% .66% .32% .41% .34% Nonperforming assets to total loans and foreclosed assets 1.23 .72 .37 .46 .41 Nonperforming assets to total assets .74 .36 .18 .24 .22 Interest on nonperforming loans Computed on original terms $ 115 $ 51 $ 15 $ 16 $ 11 Recognized prior to nonperforming status 60 32 4 5 2 Past due loans Accruing loans past due 90 days or more $3,259 $136 $ 55 $ 53 $ 51 As a percentage of total loans 1.86% .20% .11% .11% .12% Past due loans held for sale Accruing loans held for sale past due 90 days or more $40 $8 $9 $47$9 As a percentage of total loans held for sale .92% .20% .38% 1.92% .54% (a) Amounts at December 31, 2008 include $722 million of nonperforming assets related to National City. (b) Excludes loans held for sale carried at lower of cost or market value of $78 million at December 31, 2008, $25 million at December 31, 2007, $1 million at December 31, 2005, and $3 million at December 31, 2004 (includes $5 million, $1 million and $2 million of troubled debt restructured loans held for sale at December 31, 2008, December 31, 2005 and 2004, respectively). (c) Excludes equity management assets that are carried at estimated fair value of $42 million at December 31, 2008, $4 million at December 31, 2007, $11 million (including $4 million of troubled debt restructured assets) at December 31, 2006, $25 million (including $7 million of troubled debt restructured assets) at December 31, 2005, and $32 million (including $11 million of troubled debt restructured assets) at December 31, 2004. .

158 SUMMARY OF LOAN LOSS EXPERIENCE

Year ended December 31 - dollars in millions 2008 2007 2006 2005 2004 Allowance for loan and lease losses – January 1 $ 830 $ 560 $ 596 $ 607 $ 632 Charge-offs Commercial (301) (156) (108) (52) (113) Commercial real estate (165) (16) (3) (1) (2) Equipment lease financing (3) (14) (29) (2) Consumer (143) (73) (52) (45) (46) Residential real estate (6) (3) (2) (3) Total charge-offs (618) (245) (180) (129) (166) Recoveries Commercial (a) 53 30 19 82 31 Commercial real estate 10 11 11 Equipment lease financing 1 515 Consumer 15 14 15 15 13 Residential real estate 1 Total recoveries 79 45 40 99 51 Net charge-offs (a) (539) (200) (140) (30) (115) Provision for credit losses (b) 1,517 315 124 21 52 Acquired allowance – National City 2,224 Acquired allowance – other 20 152 23 22 Net change in allowance for unfunded loan commitments and letters of credit (135) 3 (20) (25) 16 Allowance for loan and lease losses – December 31 $3,917 $ 830 $ 560 $ 596 $ 607 Allowance as a percent of December 31: Loans 2.23% 1.21% 1.12% 1.21% 1.40% Nonperforming loans 236 183 350 299 405 As a percent of average loans Net charge-offs (a) .74 .32 .28 .06 .28 Provision for credit losses 2.09 .50 .25 .04 .13 Allowance for loan and lease losses 5.38 1.33 1.13 1.26 1.48 Allowance as a multiple of net charge-offs (a) 7.27x 4.15x 4.00x 19.87x 5.28x (a) Amounts for 2005 reflect the impact of a $53 million loan recovery in that year. Excluding this recovery, net charge-offs would have been .18% of average loans and the allowance as a multiple of net charge-offs would have been 7.18x. (b) Amount for 2008 included a $504 million conforming provision for credit losses related to National City.

The following table presents the assignment of the allowance for loan and lease losses and the categories of loans as a percentage of total loans. Changes in the allocation over time reflect the changes in loan portfolio composition, risk profile and refinements to reserve methodologies. For purposes of this presentation, a portion of the allowance for loan and lease losses has been assigned to loan categories based on the relative specific and pool allocation amounts to provide coverage for probable losses not covered in specific, pool and consumer reserve methodologies related to qualitative and measurement factors. At December 31, 2008, the portion of the reserves for these factors was $69 million.

ALLOCATION OF ALLOWANCE FOR LOAN AND LEASE LOSSES

2008 2007 2006 2005 2004 December 31 Loans to Loans to Loans to Loans to Loans to Dollars in millions Allowance Total Loans Allowance Total Loans Allowance Total Loans Allowance Total Loans Allowance Total Loans Commercial $1,621 38.3% $560 41.8% $443 40.9% $489 39.2% $503 40.1% Commercial real estate 833 14.7 153 13.0 30 7.0 32 6.4 26 4.5 Consumer 929 29.9 68 26.9 28 33.1 24 33.1 35 36.3 Residential real estate 308 12.3 9 14.0 7 12.7 7 14.9 6 11.0 Equipment lease financing 179 3.7 36 3.7 48 5.6 41 5.7 33 6.9 Other 47 1.1 4 .6 4 .7 3 .7 4 1.2 Total $3,917 100.0% $830 100.0% $560 100.0% $596 100.0% $607 100.0%

159 RECONCILIATIONS OF NON-GAAP RATIOS AT DECEMBER 31, 2008

Allowance for loan and lease losses to nonperforming loans GAAP basis 236% PNC, excluding the impact of National City 95%

In millions PNC consolidated allowance for loan and lease losses (GAAP) $3,917 Less: National City acquired allowance 2,224 Less: Conforming provision for credit losses 504 Add: National City amount transferred to allowance for unfunded loan commitments and letters of credit 154 PNC allowance for loan and lease losses, excluding the impact of National City $1,343 PNC consolidated nonperforming loans (GAAP) $1,662 Less: National City nonperforming loans 250 PNC nonperforming loans, excluding the impact of National City $1,412

Allowance for loan and lease losses to total loans GAAP basis 2.23% PNC, excluding the impact of National City 1.77%

In millions PNC consolidated allowance for loan and lease losses (GAAP) $ 3,917 Less: National City acquired allowance 2,224 Less: Conforming provision for credit losses 504 Add: National City amount transferred to allowance for unfunded loan commitments and letters of credit 154 PNC allowance for loan and lease losses, excluding the impact of National City $ 1,343 PNC consolidated total loans (GAAP) $175,489 Less: National City total loans 99,659 PNC total loans, excluding the impact of National City $ 75,830

PNC acquired National City on December 31, 2008. We believe that the disclosure of these ratios excluding the impact of National City provides additional meaningful information regarding the allowance for loan and lease losses at that date and the impact of National City on these ratios.

160 SHORT-TERM BORROWINGS Federal funds purchased include overnight borrowings and term federal funds, which are payable at maturity.

2008 2007 2006 Dollars in millions Amount Rate Amount Rate Amount Rate Federal funds purchased Year-end balance $ 128 .01% $7,037 3.17% $2,711 5.24% Average during year 4,518 2.15 5,533 5.13 3,081 5.10 Maximum month-end balance during year 7,343 8,798 4,226

SELECTED LOAN MATURITIES AND INTEREST SENSITIVITY COMMON STOCK PRICES/DIVIDENDS DECLARED The table below sets forth by quarter the range of high and December 31, 2008 1 Year 1 Through After 5 Gross low sale and quarter-end closing prices for our common stock In millions or Less 5 Years Years Loans and the cash dividends we declared per common share. Commercial $22,866 $36,425 $8,028 $67,319 Real estate projects 9,134 7,048 994 17,176 Cash Dividends Total $32,000 $43,473 $9,022 $84,495 High Low Close Declared Loans with 2008 Quarter Predetermined rate $ 3,408 $ 7,077 $3,315 $13,800 First $71.20 $53.10 $65.57 $ .63 Floating or Second 73.00 55.22 57.10 .66 adjustable rate 28,592 36,396 5,707 70,695 Third 87.99 49.01 74.70 .66 Total $32,000 $43,473 $9,022 $84,495 Fourth 80.00 39.09 49.00 .66 Total $2.61 At December 31, 2008, we had no pay-fixed interest rate 2007 Quarter swaps designated to commercial loans as part of fair value First $76.41 $68.60 $71.97 $ .55 hedge strategies. At December 31, 2008, $5.6 billion notional Second 76.15 70.31 71.58 .63 amount of receive-fixed interest rate swaps were designated as Third 75.99 64.00 68.10 .63 part of cash flow hedging strategies that converted the floating Fourth 74.56 63.54 65.65 .63 rate (1 month LIBOR) on the underlying commercial loans to Total $2.44 a fixed rate as part of risk management strategies. On March 1, 2009, the Board decided to reduce PNC’s TIME DEPOSITS OF $100,000 OR MORE quarterly common stock dividend from $0.66 to $0.10 per Time deposits in foreign offices totaled $4.0 billion at share. The next dividend is expected to be declared in early December 31, 2008, substantially all of which are in April 2009. denominations of $100,000 or more.

The following table sets forth maturities of domestic time deposits of $100,000 or more:

Certificates December 31, 2008 – in millions of Deposit Three months or less $ 6,177 Over three through six months 1,904 Over six through twelve months 6,146 Over twelve months 8,629 Total $22,856

161 ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH (b) DISCLOSURE CONTROLS AND PROCEDURES ACCOUNTANTS ON ACCOUNTING AND FINANCIAL AND CHANGES IN INTERNAL CONTROL OVER DISCLOSURE FINANCIAL REPORTING

As of December 31, 2008, we performed an evaluation (a) Previously reported. under the supervision and with the participation of our (b) None. management, including the Chairman and Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our ITEM 9A – CONTROLS AND PROCEDURES disclosure controls and procedures and of changes in our internal control over financial reporting. This evaluation (a) MANAGEMENT’S REPORT ON INTERNAL did not include an assessment of those disclosure controls CONTROL OVER FINANCIAL REPORTING and procedures that are subsumed by, and did not include an assessment of, internal control over financial reporting The management of The PNC Financial Services Group, as it relates to National City Corporation. Inc. and subsidiaries (“PNC”) is responsible for establishing and maintaining adequate internal control Based on that evaluation, our Chairman and Chief over financial reporting, as such term is defined in the Executive Officer and the Chief Financial Officer Exchange Act Rule 13a-15(f). concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Because of inherent limitations, internal control over Exchange Act of 1934, as amended) were effective as of financial reporting may not prevent or detect December 31, 2008, and that, except as described below, misstatements. Also, projections of any evaluation of there has been no change in PNC’s internal control over effectiveness to future periods are subject to the risk that financial reporting that occurred during the fourth quarter controls may become inadequate because of changes in of 2008 that has materially affected, or is reasonably conditions, or that the degree of compliance with the likely to materially affect, our internal control over policies or procedures may deteriorate. financial reporting. At December 31, 2008, the businesses formerly operated We performed an evaluation under the supervision and by National City Corporation were operating under with the participation of our management, including the pre-acquisition systems of internal controls over financial Chairman and Chief Executive Officer and the Chief reporting. PNC’s assessment did not include internal Financial Officer, of the effectiveness of PNC’s internal control over financial reporting related to these control over financial reporting as of December 31, 2008. businesses, which PNC acquired on December 31, 2008. This assessment was based on criteria for effective As a result of the National City Corporation acquisition internal control over financial reporting described in on December 31, 2008, we will be evaluating changes to Internal Control-Integrated Framework issued by the processes, information technology systems and other Committee of Sponsoring Organizations of the Treadway components of internal control over financial reporting as Commission. This assessment did not include internal part of our integration activities. control over financial reporting related to National City Corporation, because it was acquired by PNC on ITEM 9B – OTHER INFORMATION December 31, 2008 in a purchase business combination. The total assets of National City Corporation represented None. $136 billion of PNC’s consolidated total assets at December 31, 2008. Based on this assessment, PART III management concludes that PNC maintained effective ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND internal control over financial reporting as of CORPORATE GOVERNANCE December 31, 2008. Certain of the information regarding our directors (or PricewaterhouseCoopers LLP, the independent registered nominees for director), executive officers, Audit Committee public accounting firm that audited our consolidated (and Audit Committee financial experts), and shareholder financial statements as of and for the year ended nomination process required by this item is included under the December 31, 2008 included in this Report, has also captions “Election of Directors – Information Concerning issued a report on the effectiveness of PNC’s internal Nominees,” “Transactions Involving Directors And Executive control over financial reporting as of December 31, 2008. Officers – Family Relationships,” and “Corporate Governance The report of PricewaterhouseCoopers LLP is included At PNC – The Audit Committee,–Our Code of Business under Item 8 of this Annual Report on Form 10-K. Conduct and Ethics, and – The Nominating and Governance

162 Committee” and “Requirements for Director Nominations and ITEM 11 – EXECUTIVE COMPENSATION Shareholder Proposals” in our Proxy Statement to be filed for the 2009 annual meeting of shareholders and is incorporated The information required by this item is included under the herein by reference. In accordance with Item 407(d) (3) of captions “Director Compensation for Fiscal 2008,” “Corporate Regulation S-K, the information set forth under the caption Governance at PNC – Compensation Committee Interlocks “Item 3 – Ratification of the Audit Committee’s Selection of and Insider Participation,” and “Executive Compensation – PricewaterhouseCoopers LLP as the Independent Registered Compensation Discussion and Analysis,–Compensation Public Accounting Firm for 2009 – Report of the Audit Committee Report, and – Executive Compensation Tables” in Committee” in such Proxy Statement will be deemed to be our Proxy Statement to be filed for the 2009 annual meeting of furnished in this Report and will not be deemed to be shareholders and is incorporated herein by reference. In incorporated by reference into any filing under the Securities accordance with Item 407(e) (5) of Regulation S-K, the Act or the Exchange Act as a result of furnishing the information set forth under the caption “Executive disclosure in this manner. Compensation – Compensation Committee Report” in such Proxy Statement will be deemed to be furnished in this Report Information regarding our compliance with Section 16(a) of and will not be deemed to be incorporated by reference into the Securities Exchange Act of 1934 is included under the any filing under the Securities Act or the Exchange Act as a caption “Section 16(a) Beneficial Ownership Reporting result of furnishing the disclosure in this manner. Compliance” in our Proxy Statement to be filed for the 2009 annual meeting of shareholders and is incorporated herein by ITEM 12 – SECURITY OWNERSHIP OF CERTAIN reference. BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Additional information regarding our executive officers and our directors is included in Part I of this Report under the The information required by this item regarding security captions “Executive Officers of the Registrant” and “Directors ownership of certain beneficial owners and management is of the Registrant.” included under the caption “Security Ownership of Directors, Executive Officers and Certain Beneficial Owners” in our Our PNC Code of Business Conduct and Ethics is available on Proxy Statement to be filed for the 2009 annual meeting of our corporate website at www.pnc.com/corporategovernance. shareholders and is incorporated herein by reference. In addition, any future amendments to, or waivers from, a provision of the PNC Code of Business Conduct and Ethics Information regarding our compensation plans under which that applies to our directors or executive officers (including PNC equity securities are authorized for issuance as of the Chairman and Chief Executive Officer, the Chief Financial December 31, 2008 is included in the table which follows. Officer and the Controller) will be posted at this internet Additional information regarding these plans is included in address. Note 16 Stock-Based Compensation Plans in the Notes To Consolidated Financial Statements in Item 8 of this Report.

163 Equity Compensation Plan Information At December 31, 2008

(a) (b) (c) Number of securities Weighted-average remaining available for Number of securities to exercise price of future issuance under be issued upon exercise outstanding equity compensation plans of outstanding options, options, warrants (excluding securities warrants and rights and rights reflected in column (a)) Equity compensation plans approved by security holders 1997 Long-Term Incentive Award Plan (Note 1) Stock Options 9,538,041 $ 62.87 Incentive Performance Unit Awards (Note 2) 173,500 N/A Subtotal 9,711,541 1,945,317 2006 Incentive Award Plan (Note 3 and Note 4) Stock Options 4,833,761 $ 64.29 34,361,855 Incentive Performance Unit Awards (Note 2) 285,500 N/A 1996 Executive Incentive Award Plan Incentive Awards N/A (Note 5) Employee Stock Purchase Plan (Note 6) 1,168,517 1992 Director Share Incentive Plan N/A 367,268 Total approved by security holders 14,830,802 37,842,957 Equity compensation plans not approved by security holders (Note 7) Former National City Corporation Stock Option Plans 1,743,711 $636.31 Former National City Corporation Deferred Compensation Plan 34,140 (Note 8) Former National City Corporation Restricted Stock Units 1,646 Former Sterling Financial Corporation Stock Option Plan 165,357 $ 66.83 Total not approved by security holders 1,944,854 Total 16,775,656 37,842,957 N/A – not applicable

Note 1 – After shareholder approval of the 2006 Incentive Award Plan at the 2006 annual meeting of PNC’s shareholders on April 25, 2006 (see Note 3 below), no further grants were permitted under the 1997 Long-Term Incentive Award Plan, other than for the exercise of reload or performance unit rights. As of December 31, 2008, the number of remaining shares reserved under this plan for that purpose was 1,945,317.

Note 2 – These incentive performance unit awards provide for the issuance of shares of common stock (up to a target number of shares) based on the degree to which corporate performance goals established by the Personnel and Compensation Committee (“Committee”) have been achieved, and, if a premium level of such performance is achieved, for further payment in cash. The numbers in column (a) of this table for these awards reflect the maximum number of shares that could be issued pursuant to grants outstanding at December 31, 2008 upon achievement of the performance goals and other conditions of the grants. Grants under the 1997 Long-Term Incentive Award Plan were made in the first quarter of 2006. Grants under the 2006 Incentive Award Plan were made in the first quarter of 2007 and the first quarter of 2008.

Note 3 – The 2006 Incentive Award Plan was adopted by the Board on February 15, 2006 and approved by the PNC shareholders at the 2006 annual meeting on April 25, 2006. The plan initially authorized up to 40,000,000 shares of common stock for issuance under the plan, subject to adjustment in certain circumstances. If and to the extent that options and SARs granted under the plan, or granted under the prior plan and outstanding on the approval date of the plan, terminate, expire or are cancelled, forfeited, exchanged or surrendered after the effective date of the plan without being exercised or if any share awards, share units, dividend equivalents or other share-based awards are forfeited or terminated, or otherwise not paid in full, after the effective date of the plan, the shares subject to such grants become available again for purposes of the plan.

Note 4 – Under the 2006 Incentive Award Plan, awards or portions of awards that, by their terms, are payable only in cash do not reduce the number of shares that remain available for issuance under the plan (the number in column (c)). During 2008, a total of 371,302 cash-payable share units plus cash-payable dividend equivalents with respect to 91,449 of those share units were granted under the plan. This number includes the cash-payable portion of the 2008 incentive performance unit award grants described in Note 2 above, an incremental change in the cash-payable portion of the 2007 incentive performance unit award grants described above, a separate 2008 incentive performance unit award grant payable solely in cash, and 2008 grants of restricted share units (some of which include rights to dividend equivalents) payable solely in cash. Payments are subject to the conditions of the individual grants, including, where applicable, the achievement of any performance goals established for such grants. The comparable amount for 2007 was 189,581 cash-payable share units plus cash- payable dividend equivalents with respect to 68,288 share-payable restricted share units.

Note 5 – The 1996 Executive Incentive Award Plan is a shareholder-approved plan that enables PNC to pay annual bonuses to its senior executive officers based upon the achievement of specified levels of performance. The plan as amended and restated as of January 1, 2007 was adopted by the Board on February 14, 2007 and approved by the PNC shareholders at the 2007 annual meeting on April 24, 2007. The plan does not specify a fixed share amount for awards under the plan. Rather, it provides for maximum bonus awards for a given period (generally a year) for each individual plan participant of 0.2% of incentive income for that period. Incentive income is based on PNC’s consolidated pre-tax net income as further adjusted for the impact of changes in tax law, extraordinary items, discontinued operations, acquisition and merger integration costs, and for the impact of PNC’s obligation to fund certain BlackRock long-term incentive programs. Although the size of awards under the plan is dollar-denominated, payment may be made in cash, in stock, or in a combination of cash and stock.

During 2008, PNC paid a portion of annual bonuses awarded under this plan for 2007 performance in the form of restricted stock. PNC has reduced the number of shares available for issuance under its 2006 Incentive Award Plan (as reflected in the number under column (c) for that plan) for this restricted stock.

164 Note 6 – The Employee Stock Purchase Plan became effective in February 1997. The purchase price for shares sold under the plan represents 95% of the fair market value on the last day of each six-month offering period. The number under column (c) for the plan reflects the number of shares remaining unsold under the 1997 plan after completion of sales for the last six-month offering period pursuant to that plan ending December 31, 2008. The 1997 plan was replaced by an amended and restated plan of the same name effective for offering periods beginning on or after January 1, 2009. The 2009 plan will be presented to the PNC shareholders for approval at the 2009 annual meeting.

Note 7 – The plans in this section of the table reflect awards under pre-acquisition plans of National City Corporation and Sterling Financial Corporation, respectively. National City was merged into PNC on December 31, 2008 and Sterling was merged into PNC on April 4, 2008. Pursuant to the respective merger agreements for these acquisitions, common shares of National City or Sterling, as the case may be, issuable upon the exercise or settlement of various equity awards granted under the National City or Sterling plans were converted into corresponding awards covering PNC common stock. Additional information regarding these plans is included in Note 16 Stock-Based Compensation Plans in the Notes To Consolidated Financial Statements in Item 8 of this Report.

Note 8 – The National City Corporation 2004 Deferred Compensation Plan provided eligible employees the opportunity to defer the receipt of cash compensation which would have otherwise been received as salary, as variable pay, or as an incentive award and provided participants with nonelective deferred compensation. The plan was frozen as to new deferral elections and nonelective deferred compensation in December 2008. Deferred compensation already in the plan at that time, or contributed to the plan pursuant to previous deferral elections, is credited with gains or losses based upon investment options made available from time to time, and, as such, there is no weighted-average exercise price. The plan does not limit the number of shares that may be issued for the plan.

ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED REPORT OF INDEPENDENT REGISTERED PUBLIC TRANSACTIONS, AND DIRECTOR INDEPENDENCE ACCOUNTING FIRM

The information required by this item is included under the To the Board of Directors and Shareholders of captions “Transactions with Related Persons, Indemnification, The PNC Financial Services Group, Inc. and Advancement of Costs” and “Corporate Governance At Pittsburgh, Pennsylvania PNC – Director Independence” in our Proxy Statement to be filed for the 2009 annual meeting of shareholders and is We have audited the accompanying consolidated statements of incorporated herein by reference. income, shareholders’ equity, and cash flows of The PNC Financial Services Group, Inc. and subsidiaries (the ITEM 14 – PRINCIPAL ACCOUNTING FEES AND “Company”) for the year ended December 31, 2006. These SERVICES financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on The information required by this item is included under the these financial statements based on our audit. caption “Item 3 – Ratification of the Audit Committee’s Selection of PricewaterhouseCoopers LLP as the Independent We conducted our audit in accordance with the standards of Registered Public Accounting Firm for 2009” in our Proxy the Public Company Accounting Oversight Board (United Statement to be filed for the 2009 annual meeting of States). Those standards require that we plan and perform the shareholders and is incorporated herein by reference. audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An PART IV audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An ITEM 15 – EXHIBITS, FINANCIAL STATEMENT audit also includes assessing the accounting principles used SCHEDULES and significant estimates made by management, as well as evaluating the overall financial statement presentation. We FINANCIAL STATEMENTS, FINANCIAL believe that our audits provide a reasonable basis for our STATEMENT SCHEDULES opinion.

Our consolidated financial statements required in response to In our opinion, such consolidated financial statements present this Item are incorporated by reference from Item 8 of this fairly, in all material respects, the results of operations and Report. cash flows of The PNC Financial Services Group, Inc. and subsidiaries for the year ended December 31, 2006, in Audited consolidated financial statements of BlackRock, Inc. conformity with accounting principles generally accepted in (“BlackRock”) as of December 31, 2008 and 2007 and for the United States of America. each of the three years ended December 31, 2008, are incorporated herein by reference to Item 15 (a) (1) of As discussed in Note 1 to the consolidated financial BlackRock’s 2008 Annual Report on Form 10-K statements, the Company adopted Statement of Financial (Commission File Number 001-33099). Accounting Standard No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an The report of our former independent registered public amendment of FASB Statements No. 87, 88, 106, and 132(R)” accounting firm follows: as of December 31, 2006.

165 As discussed in Note 1 to the consolidated financial EXHIBITS statements, the accompanying consolidated statement of cash flows for the year ended December 31, 2006 has been restated. Our exhibits listed on the Exhibit Index on pages E-1 through E-7 of this Form 10-K are filed with this Report or are As a result of the transaction discussed in Note 2 to the incorporated herein by reference. consolidated financial statements, the Company no longer consolidates BlackRock, Inc. (“BlackRock”). Beginning September 30, 2006, the Company recognized its investment in BlackRock using the equity method of accounting.

/s/ Deloitte & Touche LLP Pittsburgh, Pennsylvania March 1, 2007 (February 4, 2008 as to the effects of the restatement discussed in Note 1)

166 SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE PNC FINANCIAL SERVICES GROUP, INC. (Registrant)

By: /s/ Richard J. Johnson Richard J. Johnson Chief Financial Officer March 2, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of The PNC Financial Services Group, Inc. and in the capacities indicated on March 2, 2009.

Signature Capacities

/s/ James E. Rohr Chairman, Chief Executive Officer and Director James E. Rohr (Principal Executive Officer)

/s/ Richard J. Johnson Chief Financial Officer Richard J. Johnson (Principal Financial Officer)

/s/ Samuel R. Patterson Controller Samuel R. Patterson (Principal Accounting Officer)

* Richard O. Berndt; Charles E. Bunch; Paul W. Chellgren; Directors Robert N. Clay; George A. Davidson, Jr.; Kay Coles James; Richard B. Kelson; Bruce C. Lindsay; Anthony A. Massaro; Jane G. Pepper; Donald J. Shepard; Lorene K. Steffes; Dennis F. Strigl; Stephen G. Thieke; Thomas J. Usher; George H. Walls, Jr.; and Helge H. Wehmeier

*By: /s/ George P. Long, III George P. Long, III, Attorney-in-Fact, pursuant to Powers of Attorney filed herewith

167 [THIS PAGE INTENTIONALLY LEFT BLANK] EXHIBIT INDEX

Exhibit No. Description Method of Filing +

2.1 Agreement and Plan of Merger, dated as of October 24, 2008, by Incorporated herein by reference to Exhibit 2.1 of and between the Corporation and National City Corporation the Corporation’s Current Report on Form 8-K filed October 30, 2008 3.1 Articles of Incorporation of the Corporation, as amended effective Filed herewith as of January 2, 2009 3.2 By-Laws of the Corporation, as amended and restated effective as Incorporated herein by reference to Exhibit 3.2 of of February 12, 2009 the Corporation’s Current Report on Form 8-K filed February 19, 2009 4.1 There are no instruments with respect to long-term debt of the Corporation and its subsidiaries that involve securities authorized under the instrument in an amount exceeding 10 percent of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to provide the SEC with a copy of instruments defining the rights of holders of long-term debt of the Corporation and its subsidiaries on request. 4.2 Terms of $1.80 Cumulative Convertible Preferred Stock, Series A Incorporated herein by reference to Exhibit 3.1 hereof 4.3 Terms of $1.80 Cumulative Convertible Preferred Stock, Series B Incorporated herein by reference to Exhibit 3.1 hereof 4.4 Terms of $1.60 Cumulative Convertible Preferred Stock, Series C Incorporated herein by reference to Exhibit 3.1 hereof 4.5 Terms of $1.80 Cumulative Convertible Preferred Stock, Series D Incorporated herein by reference to Exhibit 3.1 hereof 4.6 Terms of 7.00% Non-Cumulative Preferred Stock, Series H Incorporated herein by reference to Exhibit 3.1 hereof 4.7 Terms of Fixed-to-Floating Rate Non-Cumulative Perpetual Incorporated herein by reference to Exhibit 3.1 Preferred Stock, Series I hereof 4.8 Terms of Fixed-to-Floating Rate Non-Cumulative Perpetual Incorporated herein by reference to Exhibit 3.1 Preferred Stock, Series J hereof 4.9 Terms of Fixed-to-Floating Non-Cumulative Perpetual Preferred Incorporated herein by reference to Exhibit 3.1 Stock, Series K hereof 4.10 Terms of 9.875% Fixed-to-Floating Rate Non-Cumulative Incorporated herein by reference to Exhibit 3.1 Preferred Stock, Series L hereof 4.11 Terms of Non-Cumulative Perpetual Preferred Stock, Series M Incorporated herein by reference to Exhibit 3.1 hereof 4.12 Terms of Fixed Rate Cumulative Perpetual Preferred Stock, Incorporated herein by reference to Exhibit 3.1 Series N hereof 4.13 Warrant for Purchase of Shares of PNC Common Stock Incorporated herein by reference to Exhibit 4.2 of the Corporation’s Current Report on Form 8-K filed January 2, 2009 4.14 Letter Agreement dated December 31, 2008 by and between the Incorporated herein by reference to Exhibit 10.1 of Corporation and the United States Department of the Treasury the Corporation’s Current Report on Form 8-K filed January 2, 2009

E-1 4.15 First Supplemental Indenture, dated as of January 29, 2008, Incorporated herein by reference to Exhibit 4.2 of between National City Corporation, as Issuer, and The Bank of the Current Report on Form 8-K filed by New York Trust Company, N.A., as Trustee, related to the National City Corporation (Commission File No. issuance of 4.0% Convertible Senior Notes due 2011 001-10074) on February 4, 2008 4.16 Second Supplemental Indenture, dated as of December 31, 2008, Filed herewith between the Corporation and The Bank of New York evidencing the succession of the Corporation to National City 4.17 Deposit Agreement dated January 30, 2008 by and among Incorporated herein by reference to Exhibit 4.2 of National City Corporation, Wilmington Trust Company, the Form 8-A filed by National City Corporation National City Bank as Transfer Agent and Registrar, and all on January 30, 2008 holders from time to time of Receipts issued pursuant thereto 4.18 Letter Agreement dated as of December 31, 2008 between the Incorporated herein by reference to Exhibit 4.4 of Corporation and Wilmington Trust Company the Corporation’s Form 8-A filed December 31, 2008 4.19 Stock Purchase Contract between National City Corporation and Incorporated herein by reference to Exhibit 4.7 of National City Preferred Capital Trust I acting through the Bank the Form 8-A filed by National City Corporation of New York Trust Company, N.A. as Property Trustee, dated (Commission File No. 001-10074) on January January 30, 2008 30, 2008 4.20 Form of PNC Bank, National Association Global Bank Note for Incorporated herein by reference to Exhibit 4.9 of Fixed Rate Global Senior Bank Note with Maturity of more the Corporation’s Quarterly Report on Form than Nine Months from Date of Issuance 10-Q for the quarter ended September 30, 2004 (“3rd Quarter 2004 Form 10-Q”) 4.21 Form of PNC Bank, National Association Global Bank Note for Incorporated herein by reference to Exhibit 4.10 of Floating Rate Global Senior Bank Note with Maturity of more the Corporation’s 3rd Quarter 2004 Form 10-Q than Nine Months from Date of Issuance 4.22 Form of PNC Bank, National Association Global Bank Note for Incorporated herein by reference to Exhibit 4.11 of Fixed Rate Global Subordinated Bank Note with Maturity of the Corporation’s 3rd Quarter 2004 Form 10-Q more than Nine Months from Date of Issuance 4.23 Form of PNC Bank, National Association Global Bank Note for Incorporated herein by reference to Exhibit 4.12 of Floating Rate Global Subordinated Bank Note with Maturity of the Corporation’s 3rd Quarter 2004 Form 10-Q more than Nine Months from Date of Issuance 4.24 Exchange Agreement, dated March 29, 2007, by and among the Incorporated herein by reference to Exhibit 4.16 of Corporation, PNC Bank, National Association, and PNC the Corporation’s Current Report on Form 8-K Preferred Funding Trust II filed March 30, 2007 4.25 First Supplemental Indenture, dated as of February 13, 2008, Incorporated herein by reference to Exhibit 4.4 of between the Corporation and The Bank of New York. the Corporation’s Current Report on Form 8-K filed February 13, 2008 4.26 Exchange Agreement, dated February 14, 2008, by and among the Incorporated herein by reference to Exhibit 99.1 of Corporation, PNC Bank, National Association, and PNC the Corporation’s Current Report on Form 8-K Preferred Funding Trust III filed February 19, 2008 10.1 The Corporation’s Supplemental Executive Retirement Plan, as Incorporated herein by reference to Exhibit 10.1 of amended and restated the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 (“2nd Quarter 2004 Form 10-Q”)* 10.2 The Corporation’s Supplemental Executive Retirement Plan, as Filed herewith* amended and restated effective January 1, 2009 10.3 The Corporation’s ERISA Excess Pension Plan, as amended and Incorporated herein by reference to Exhibit 10.2 of restated the Corporation’s 2nd Quarter 2004 Form 10-Q*

E-2 10.4 The Corporation’s ERISA Excess Pension Plan, as amended and Filed herewith* restated effective January 1, 2009 10.5 The Corporation’s Key Executive Equity Program, as amended Incorporated herein by reference to Exhibit 10.3 of and restated the Corporation’s 2nd Quarter 2004 Form 10-Q* 10.6 The Corporation’s Key Executive Equity Program, as amended Filed herewith* and restated effective January 1, 2009 10.7 The Corporation’s Supplemental Incentive Savings Plan, as Incorporated herein by reference to Exhibit 10.4 of amended and restated the Corporation’s 2nd Quarter 2004 Form 10-Q* 10.8 The Corporation’s Supplemental Incentive Savings Plan, as Incorporated herein by reference to Exhibit 4.3 to amended and restated effective January 1, 2009 the Registration Statement on Form S-8 filed by the Corporation on January 22, 2009* 10.9 The Corporation and Affiliates Deferred Compensation Plan, as Incorporated herein by reference to Exhibit 10.7 of amended and restated the Corporation’s 2nd Quarter 2004 Form 10-Q* 10.10 The Corporation and Affiliates Deferred Compensation Plan, as Incorporated herein by reference to Exhibit 4.5 to amended and restated effective January 1, 2009 the Registration Statement on Form S-8 filed by the Corporation on January 22, 2009* 10.11 AJCA transition amendments to the Corporation’s Supplemental Incorporated herein by reference to Exhibit 10.8 of Incentive Savings Plan and the Corporation and Affiliates the Corporation’s Annual Report on Form 10-K Deferred Compensation Plan for the year ended December 31, 2005 (“2005 Form 10-K”)* 10.12 Further AJCA transition amendments to the Corporation and Filed herewith* Affiliates Deferred Compensation Plan 10.13 The Corporation’s 2006 Incentive Award Plan, as amended and Incorporated herein by reference to Exhibit 10.53 restated of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008* 10.14 The Corporation’s 1997 Long-Term Incentive Award Plan, as Incorporated herein by reference to Exhibit 10.5 of amended and restated the Corporation’s 2nd Quarter 2004 Form 10-Q* 10.15 The Corporation’s 1996 Executive Incentive Award Plan, as Incorporated herein by reference to Exhibit 10.10 amended and restated effective as of January 1, 2007 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007 (“2007 Form 10-K”)* 10.16 1992 Director Share Incentive Plan Incorporated herein by reference to Exhibit 10.11 of the 2007 Form 10-K* 10.17 The Corporation’s Directors Deferred Compensation Plan, as Incorporated herein by reference to Exhibit 10.12 amended and restated of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 (“1st Quarter 2004 Form 10-Q”)* 10.18 The Corporation’s Directors Deferred Compensation Plan, Incorporated herein by reference to Exhibit 10.14 effective as of January 1, 2008 of the Corporation’s 2007 Form 10-K* 10.19 The Corporation’s Outside Directors Deferred Stock Unit Plan, as Incorporated herein by reference to Exhibit 10.13 amended and restated of the Corporation’s 1st Quarter 2004 Form 10-Q* 10.20 The Corporation’s Outside Directors Deferred Stock Unit Plan, Incorporated herein by reference to Exhibit 10.15 effective as of January 1, 2008 of the Corporation’s 2007 Form 10-K* 10.21 Amended and Restated Trust Agreement between PNC Incorporated herein by reference to Exhibit 10.35 Investment Corp., as settlor, and Hershey Trust Company, as of the Corporation’s Quarterly Report on Form trustee 10-Q for the quarter ended September 30, 2005 (“3rd Quarter 2005 Form 10-Q”)*

E-3 10.22 Trust Agreement between PNC Investment Corp., as settlor, and Incorporated herein by reference to Exhibit 10.34 PNC Bank, National Association, as trustee of the Corporation’s 3rd Quarter 2005 Form 10-Q* 10.23 The Corporation’s Employee Stock Purchase Plan, as amended Incorporated herein by reference to Exhibit 10.18 and restated of the Corporation’s 2007 Form 10-K 10.24 The Corporation’s Employee Stock Purchase Plan, as amended Incorporated herein by reference to Exhibit 4.5 to and restated as of January 1, 2009 the Registration Statement on Form S-8 filed by the Corporation on December 31, 2008 10.25 Forms of employee stock option, restricted stock, restricted Incorporated herein by reference to Exhibit 10.30 deferral, and incentive share agreements of the Corporation’s 3rd Quarter 2004 Form 10-Q* 10.26 2005 forms of employee stock option, restricted stock and Incorporated herein by reference to Exhibit 10.28 restricted deferral agreements of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004 (“2004 Form 10-K”)* 10.27 2006 forms of employee stock option, restricted stock and Incorporated herein by reference to Exhibit 10.17 restricted deferral agreements of the Corporation’s 2005 Form 10-K* 10.28 Forms of employee stock option and restricted stock agreements Incorporated by reference to Exhibit 10.40 of the under 2006 Incentive Award Plan Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006* 10.29 2006 forms of employee incentive performance unit and senior Incorporated herein by reference to Exhibit 10.20 officer change in control severance agreements of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2006 as filed on March 1, 2007 (“2006 Form 10-K”)* 10.30 2007 forms of employee stock option and restricted stock Incorporated herein by reference to Exhibit 10.21 agreements of the Corporation’s 2006 Form 10-K* 10.31 2006-2007 forms of employee incentive performance units Incorporated herein by reference to Exhibit 10.51 agreements of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 (“2nd Quarter 2007 Form 10-Q”)* 10.32 2008 forms of employee stock option and restricted stock/share Incorporated herein by reference to Exhibit 10.26 unit agreements of the Corporation’s 2007 Form 10-K* 10.33 2008 forms of employee performance units agreements Filed herewith* 10.34 Form of employee stock option agreement with varied vesting Incorporated herein by reference to Exhibit 10.50 schedule or circumstances of the Corporation’s Current Report on Form 8-K filed April 18, 2008* 10.35 Form of employee restricted stock agreement with varied vesting Incorporated herein by reference to Exhibit 10.51 schedule or circumstances of the Corporation’s Current Report on Form 8-K filed April 18, 2008* 10.36 Form of employee stock option agreement with performance Incorporated herein by reference to Exhibit 10.54 vesting schedule of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008* 10.37 Forms of director stock option and restricted stock agreements Incorporated herein by reference to Exhibit 10.32 of the Corporation’s 3rd Quarter 2004 Form 10-Q* 10.38 2005 form of director stock option agreement Incorporated herein by reference to Exhibit 10.33 of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005*

E-4 10.39 Form of time sharing agreements between the Corporation and Filed herewith* certain executives 10.40 Form of Change in Control Employment Agreements Incorporated herein by reference to Exhibit 99.1 of the Corporation’s Current Report on Form 8-K filed September 12, 2008* 10.41 Form of former senior officer change in control severance Incorporated herein by reference to Exhibit 10.17 agreement of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 1996* 10.42 Forms of first amendment to former senior officer change in Incorporated herein by reference to Exhibit 10.9 of control severance agreements the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000* 10.43 Forms of second amendment to former senior officer change in Incorporated herein by reference to Exhibit 10.15 control severance agreements of the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001* 10.44 Forms of third amendment to former senior officer change in Incorporated herein by reference to Exhibit 10.26 control severance agreements of the Corporation’s 1st Quarter 2004 Form 10-Q* 10.45 Form of former other officer change in control severance Incorporated herein by reference to Exhibit 10.31 agreements of the 3rd Quarter 2004 Form 10-Q* 10.46 The National City Corporation 2004 Deferred Compensation Plan, Incorporated herein by reference to Exhibit 10.35 as amended and restated effective January 1, 2005 to National City Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006 10.47 BlackRock, Inc. 2002 Long-Term Retention and Incentive Plan Incorporated herein by reference to the Quarterly Report on Form 10-Q of BlackRock Holdco 2, Inc. (Commission File No. 001-15305) for the quarter ended September 30, 2002 (“BlackRock Holdco 2 3rd Quarter 2002 Form 10-Q”) 10.48 First Amendment to the BlackRock, Inc. 2002 Long-Term Incorporated herein by reference to the Quarterly Retention and Incentive Plan Report on Form 10-Q of BlackRock Holdco 2, Inc. (Commission File No. 001-15305) for the quarter ended March 31, 2004 10.49 Second Amendment to the BlackRock, Inc. 2002 Long-Term Incorporated herein by reference to the Annual Retention and Incentive Plan Report on Form 10-K of BlackRock Holdco 2, Inc. (Commission File No. 001-15305) for the year ended December 31, 2004 10.50 Share Surrender Agreement, dated October 10, 2002, among Incorporated herein by reference to the BlackRock BlackRock, Inc., PNC Asset Management, Inc., and the Holdco 2 3rd Quarter 2002 Form 10-Q Corporation 10.51 First Amendment, dated as of February 15, 2006, to the Share Incorporated herein by reference to the Current Surrender Agreement among BlackRock, Inc., PNC Bancorp, Report on Form 8-K of BlackRock Holdco 2, Inc. and the Corporation Inc. (Commission File No. 001-15305) filed February 22, 2006 (“BlackRock Holdco 2 February 22, 2006 Form 8-K”) 10.52 Second Amendment to Share Surrender Agreement made and Incorporated herein by reference to Exhibit 10.50 entered into as of June 11, 2007 by and between the of the Corporation’s Current Report on Form Corporation, BlackRock, Inc., and PNC Bancorp, Inc. 8-K filed June 14, 2007

E-5 10.53 Implementation and Stockholder Agreement, dated as of February Incorporated herein by reference to the BlackRock 15, 2006, among BlackRock, Inc., New Boise, Inc. and the Holdco 2 February 22, 2006 Form 8-K Corporation 10.54 Exchange Agreement by and between the Corporation and Incorporated herein by reference to Exhibit 10.2 of BlackRock, Inc. dated as of December 26, 2008 the Current Report on Form 8-K of BlackRock, Inc. (Commission File No. 001-33099) filed December 29, 2008 10.55 PNC Bank, National Association US $20,000,000,000 Global Incorporated herein by reference to Exhibit 10.29 Bank Note Program for the Issue of Senior and Subordinated of the Corporation’s 3rd Quarter 2004 Form 10-Q Bank Notes with Maturities of more than Nine Months from Date of Issue Distribution Agreement dated July 30, 2004 10.56 Agreement and Plan of Merger dated as of October 24, 2008 by Incorporated herein by reference to Exhibit 2.1 of and between the Corporation and National City Corporation the Corporation’s Current Report on Form 8-K filed October 30, 2008 10.57 Warrant for Purchase of Shares of PNC Common Stock Incorporated herein by reference to Exhibit 4.2 of the Corporation’s Current Report on Form 8-K filed January 2, 2009 10.58 Letter Agreement dated December 31, 2008 by and between the Incorporated herein by reference to Exhibit 10.1 of Corporation and the United States Department of the Treasury the Corporation’s Current Report on Form 8-K filed January 2, 2009 12.1 Computation of Ratio of Earnings to Fixed Charges Filed herewith 12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Filed herewith Dividends 21 Schedule of Certain Subsidiaries of the Corporation Filed herewith 23.1 Consent of PricewaterhouseCoopers LLP, the Corporation’s Filed herewith Independent Registered Public Accounting Firm 23.2 Consent of Deloitte & Touche LLP, the Corporation’s former Filed herewith Independent Registered Public Accounting Firm 23.3 Consent of Deloitte & Touche LLP, Independent Registered Filed herewith Public Accounting Firm of BlackRock, Inc. 24 Powers of Attorney Filed herewith 31.1 Certification of Chairman and Chief Executive Officer pursuant to Filed herewith Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of Filed herewith the Sarbanes-Oxley Act of 2002 32.1 Certification of Chairman and Chief Executive Officer pursuant to Filed herewith 18 U.S.C. Section 1350 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Filed herewith Section 1350

E-6 99.1 Form of Order of the Securities and Exchange Commission Incorporated herein by reference to Exhibit 99.3 of Instituting Public Administrative Procedures Pursuant to the Corporation’s Current Report on Form 8-K Section 8A of the Securities Act of 1933 and 21C of the dated and filed July 18, 2002 Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order

+ Incorporated document references to filings by the Corporation are to SEC File No. 001-09718, to filings by National City Corporation are to SEC File No. 001-10074, to filings by BlackRock through its second quarter 2006 Form 10-Q are to BlackRock Holdco 2, Inc. SEC File No. 001-15305, and to filings by BlackRock, Inc. are to SEC File No. 001-33099. * Denotes management contract or compensatory plan.

You can obtain copies of these Exhibits electronically at the SEC’s website at www.sec.gov or by mail from the Public Reference Section of the SEC, at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. The Exhibits are also available as part of this Form 10-K on or through PNC’s corporate website at www.pnc.com/secfilings under “Form 10-K.” Shareholders and bondholders may also obtain copies without charge by contacting Shareholder Relations at (800) 843-2206 or via e-mail at [email protected].

E-7 [THIS PAGE INTENTIONALLY LEFT BLANK] EXHIBIT 31.1 Insofar as it relates to internal control over financial reporting, including that portion of disclosure controls and procedures that relates to internal control over financial reporting, this Certification does not include internal control over financial reporting related to the former National City Corporation which PNC acquired on December 31, 2008 in a purchase business combination. National City Corporation was merged into PNC in the acquisition transaction, and its assets became assets of PNC as of the acquisition date. The total assets of National City Corporation represented $136 billion of PNC’s consolidated total assets at December 31, 2008.

CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, James E. Rohr, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2008 of The PNC Financial Services Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 2, 2009

/s/ JAMES E. ROHR James E. Rohr Chairman and Chief Executive Officer EXHIBIT 31.2 Insofar as it relates to internal control over financial reporting, including that portion of disclosure controls and procedures that relates to internal control over financial reporting, this Certification does not include internal control over financial reporting related to the former National City Corporation which PNC acquired on December 31, 2008 in a purchase business combination. National City Corporation was merged into PNC in the acquisition transaction, and its assets became assets of PNC as of the acquisition date. The total assets of National City Corporation represented $136 billion of PNC’s consolidated total assets at December 31, 2008.

CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Richard J. Johnson, certify that: 1. I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2008 of The PNC Financial Services Group, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. Date: March 2, 2009

/s/ RICHARD J. JOHNSON Richard J. Johnson Chief Financial Officer EXHIBIT 32.1

CERTIFICATION BY CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2008 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, James E. Rohr, Chairman and Chief Executive Officer of the Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation for the dates and periods covered by the Report.

This certificate is being made for the exclusive purpose of compliance by the Chief Executive Officer of the Corporation with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law.

/s/ JAMES E. ROHR James E. Rohr Chairman and Chief Executive Officer March 2, 2009 EXHIBIT 32.2

CERTIFICATION BY CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K for the year ended December 31, 2008 of The PNC Financial Services Group, Inc. (Corporation) as filed with the Securities and Exchange Commission on the date hereof (Report), I, Richard J. Johnson, Chief Financial Officer of the Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation for the dates and periods covered by the Report.

This certificate is being made for the exclusive purpose of compliance by the Chief Financial Officer of the Corporation with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be used by any person or for any reason other than as specifically required by law.

/s/ RICHARD J. JOHNSON Richard J. Johnson Chief Financial Officer March 2, 2009